[House Report 107-251]
[From the U.S. Government Publishing Office]
107th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 107-251
======================================================================
ECONOMIC SECURITY AND RECOVERY ACT OF 2001
_______
October 17, 2001.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Thomas, from the Committee on Ways and Means, submitted the
following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 3090]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 3090) to provide tax incentives for economic
recovery, having considered the same, reports favorably thereon
with an amendment and recommends that the bill as amended do
pass.
CONTENTS
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Page
I. Summary and Background..........................................17
A. Purpose and Summary................................. 17
B. Background and Need for Legislation................. 18
C. Legislative History................................. 19
II. Explanation of the Bill.........................................19
Title I: Business Provisions....................................19
A. Special Depreciation Allowance for Certain Property
(sec. 101 of the bill and sec. 168 and sec. 280F of
the Code).......................................... 19
B. Temporary Increase in Section 179 Expensing (sec.
102 of the bill and sec. 179 of the Code).......... 21
C. Repeal Corporate Alternative Minimum Tax (sec. 103
of the bill and sec. 55 of the Code)............... 22
D. Temporary Extension of the Net Operating Loss
Carryback Period (sec. 104 of the bill and secs.
172 and 56 of the Code)............................ 25
E. Treatment of Leasehold Improvements (sec. 105 of the
bill and sec. 168 of the Code)..................... 26
Title II: Individual Provisions.................................28
A. Accelerate the 25-Percent Rate Bracket to 2002 (sec.
201(a) of the bill and sec. 1 of the Code)......... 28
B. Alternative Minimum Tax Exemption for Individuals
(sec. 201(b) of the bill and sec. 55 of the Code).. 29
C. Simplify Individual Capital Gains Rates (sec. 202 of
the bill and sec. 1(h) of the Code)................ 30
D. Increase Deduction of Capital Losses of Individuals
Against Ordinary Income (sec. 203 of the bill and
sec. 1211 of the Code)............................. 32
E. Expand Exception From Early Withdrawal Tax For
Health Insurance Expenses Of Unemployed Individuals
(Sec. 204 of the bill and sec. 72(t) of the Code).. 32
Title III: Extensions of Expiring Provisions....................34
A. Two-Year Extension of Provisions Expiring in 2001... 34
1. Extend Alternative Minimum Tax Relief for
Individuals (sec. 301 of the bill and sec. 26
of the Code)................................... 34
2. Extend Credit for Purchase of Electric Vehicles
(sec. 302 of the bill and secs. 30 and 280F of
the Code)...................................... 35
3. Extend Section 45 Credit for Production of
Electricity from Wind, Closed Loop Biomass, and
Poultry Litter (sec. 303 of the bill and sec.
45 of the Code)................................ 36
4. Extend the Work Opportunity Tax Credit (sec. 304
of the bill and sec. 51 of the Code)........... 37
5. Extend the Welfare-To-Work Tax Credit (sec. 305
of the bill and sec. 51A of the Code).......... 38
6. Extend Deduction for Qualified Clean-Fuel
Vehicle Property and Qualified Clean-Fuel
Vehicle Refueling Property (sec. 306 of the
bill and secs. 179A and 280F of the Code)...... 39
7. Taxable Income Limit on Percentage Depletion for
Marginal Production (sec. 307 of the bill and
sec. 613A of the Code)......................... 40
8. Extension of Authority to Issue Qualified Zone
Academy Bonds (sec. 308 of the bill and sec.
1397E of the Code)............................. 41
9. Extension of Increased Coverover Payments to
Puerto Rico and the Virgin Islands (sec. 309 of
the bill and sec. 7652 of the Code)............ 43
10. Tax on Failure to Comply with Mental Health
Parity Requirements (sec. 310 of the bill and
sec. 9812 of the Code)......................... 43
11. Delay in Effective Date of Requirement for
Approved Diesel or Kerosene Terminal (sec. 311
of the bill and sec. 4101 of the Code)......... 44
B. One-Year Extension of Provision Expiring in 2002.... 45
1. Extension of Archer Medical Savings Accounts
(``MSAs'') (sec. 321 of the bill and sec. 220
of the Code)................................... 45
C. Permanent Extension................................. 48
1. Extend Exceptions under Subpart F for Active
Financing Income (sec. 331 of the bill and
secs. 953 and 954 of the Code)................. 48
D. Other Provisions.................................... 51
1. Discharge of Indebtedness of an S Corporation
(sec. 341 of the bill and sec. 108 of the Code) 51
2. Limitation on Use of Non-Accrual Experience
Method of Accounting (sec. 342 of the bill and
sec. 448 of the Code).......................... 53
Title IV--Supplemental Rebate; Other Provisions.................55
A. Supplemental Rebate (sec. 401 of the bill and sec.
6428 of the Code).................................. 55
B. Special Reed Act Transfer in Fiscal Year 2002 (sec.
402 of the bill)................................... 56
1. Repeal of Certain Provisions Added by the
Balanced Budget Act of 1997.................... 56
2. Special Transfer in Fiscal Year 2002............ 57
3. Limitations on Transfers........................ 60
4. Technical Amendments............................ 60
5. Regulations..................................... 61
Title V--Health Care Assistance For The Unemployed..............61
A. Health Care Assistance for the Unemployed........... 61
III. Votes of the Committee.....................................62
IV. Budget Effects of the Bill..................................64
A. Committee Estimate of Budgetary Effects............. 64
B. Statement Regarding New Budget Authority and Tax
Expenditures Budget Authority...................... 68
C. Cost Estimate Prepared by the Congressional Budget
Office............................................. 68
V. Other Matters To Be Discussed Under the Rules of the House...74
A. Committee Oversight Findings and Recommendations.... 74
B. Statement of General Performance Goals and
Objectives......................................... 74
C. Constitutional Authority Statement.................. 75
D. Information Relating to Unfunded Mandates........... 75
E. Applicability of House Rule XXI 5(b)................ 75
F. Tax Complexity Analysis............................. 75
1. Special Depreciation Allowance for Certain
Property (sec. 101 of the bill)................ 76
2. Accelerate the 25-Percent Rate Bracket to 2002
(sec. 201(a) of the bill)...................... 77
3. Simplify Individual Capital Gains Rates (sec.
202 of the bill)............................... 77
4. Supplemental Rebate (sec. 401 of the bill)...... 78
VI. Changes in Existing Law Made by the Bill, as Reported...........83
VII. Dissenting Views...............................................137
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE; ETC.
(a) Short Title.--This Act may be cited as the ``Economic Security
and Recovery Act of 2001''.
(b) References to Internal Revenue Code of 1986.--Except as otherwise
expressly provided, whenever in this Act an amendment or repeal is
expressed in terms of an amendment to, or repeal of, a section or other
provision, the reference shall be considered to be made to a section or
other provision of the Internal Revenue Code of 1986.
(c) Table of Contents.--
Sec. 1. Short title; etc.
TITLE I--BUSINESS PROVISIONS
Sec. 101. Special depreciation allowance for certain property acquired
after September 10, 2001, and before September 11, 2004.
Sec. 102. Temporary increase in expensing under section 179.
Sec. 103. Repeal of alternative minimum tax on corporations.
Sec. 104. Carryback of certain net operating losses allowed for 5
years.
Sec. 105. Recovery period for depreciation of certain leasehold
improvements.
TITLE II--INDIVIDUAL PROVISIONS
Sec. 201. Acceleration of 25 percent individual income tax rate.
Sec. 202. Repeal of 5-year holding period requirement for reduced
individual capital gains rates.
Sec. 203. Temporary increase in deduction for capital losses of
taxpayers other than corporations.
Sec. 204. Temporary expansion of penalty-free retirement plan
distributions for health insurance premiums of unemployed individuals.
TITLE III--EXTENSIONS OF CERTAIN EXPIRING PROVISIONS
Subtitle A--Two-Year Extensions
Sec. 301. Allowance of nonrefundable personal credits against regular
and minimum tax liability.
Sec. 302. Credit for qualified electric vehicles.
Sec. 303. Credit for electricity produced from renewable resources.
Sec. 304. Work opportunity credit.
Sec. 305. Welfare-to-work credit.
Sec. 306. Deduction for clean-fuel vehicles and certain refueling
property.
Sec. 307. Taxable income limit on percentage depletion for oil and
natural gas produced from marginal properties.
Sec. 308. Qualified zone academy bonds.
Sec. 309. Cover over of tax on distilled spirits.
Sec. 310. Parity in the application of certain limits to mental health
benefits.
Sec. 311. Delay in effective date of requirement for approved diesel or
kerosene terminals.
Subtitle B--One-Year Extensions
Sec. 321. One-year extension of availability of medical savings
accounts.
Subtitle C--Permanent Extensions
Sec. 331. Subpart F exemption for active financing.
Subtitle D--Other Provisions
Sec. 341. Excluded cancellation of indebtedness income of S corporation
not to result in adjustment to basis of stock of shareholders.
Sec. 342. Limitation on use of nonaccrual experience method of
accounting.
TITLE IV--SUPPLEMENTAL REBATE; OTHER PROVISIONS
Sec. 401. Supplemental rebate.
Sec. 402. Special Reed Act transfer in fiscal year 2002.
TITLE V--HEALTH CARE ASSISTANCE FOR THE UNEMPLOYED
Sec. 501. Health care assistance for the unemployed.
TITLE I--BUSINESS PROVISIONS
SEC. 101. SPECIAL DEPRECIATION ALLOWANCE FOR CERTAIN PROPERTY ACQUIRED
AFTER SEPTEMBER 10, 2001, AND BEFORE SEPTEMBER 11,
2004.
(a) In General.--Section 168 (relating to accelerated cost recovery
system) is amended by adding at the end the following new subsection:
``(k) Special Allowance for Certain Property Acquired After September
10, 2001, and Before September 11, 2004.--
``(1) Additional allowance.--In the case of any qualified
property--
``(A) the depreciation deduction provided by section
167(a) for the taxable year in which such property is
placed in service shall include an allowance equal to
30 percent of the adjusted basis of the qualified
property, and
``(B) the adjusted basis of the qualified property
shall be reduced by the amount of such deduction before
computing the amount otherwise allowable as a
depreciation deduction under this chapter for such
taxable year and any subsequent taxable year.
``(2) Qualified property.--For purposes of this subsection--
``(A) In general.--The term `qualified property'
means property--
``(i)(I) to which this section applies which
has a recovery period of 20 years or less or
which is water utility property, or
``(II) which is computer software (as defined
in section 167(f)(1)(B)) for which a deduction
is allowable under section 167(a) without
regard to this subsection,
``(ii) the original use of which commences
with the taxpayer after September 10, 2001,
``(iii) which is--
``(I) acquired by the taxpayer after
September 10, 2001, and before
September 11, 2004, but only if no
written binding contract for the
acquisition was in effect before
September 11, 2001, or
``(II) acquired by the taxpayer
pursuant to a written binding contract
which was entered into after September
10, 2001, and before September 11,
2004, and
``(iv) which is placed in service by the
taxpayer before January 1, 2005.
``(B) Exceptions.--
``(i) Alternative depreciation property.--The
term `qualified property' shall not include any
property to which the alternative depreciation
system under subsection (g) applies,
determined--
``(I) without regard to paragraph (7)
of subsection (g) (relating to election
to have system apply), and
``(II) after application of section
280F(b) (relating to listed property
with limited business use).
``(ii) Election out.--If a taxpayer makes an
election under this clause with respect to any
class of property for any taxable year, this
subsection shall not apply to all property in
such class placed in service during such
taxable year.
``(iii) Repaired or reconstructed property.--
Except as otherwise provided in regulations,
the term `qualified property' shall not include
any repaired or reconstructed property.
``(iv) Qualified leasehold improvement
property.--The term `qualified property' shall
not include any qualified leasehold improvement
property (as defined in section 168(e)(6)).
``(C) Special rules relating to original use.--
``(i) Self-constructed property.--In the case
of a taxpayer manufacturing, constructing, or
producing property for the taxpayer's own use,
the requirements of clause (iii) of
subparagraph (A) shall be treated as met if the
taxpayer begins manufacturing, constructing, or
producing the property after September 10,
2001, and before September 11, 2004.
``(ii) Sale-leasebacks.--For purposes of
subparagraph (A)(ii), if property--
``(I) is originally placed in service
after September 10, 2001, by a person,
and sold and leased back by such person
within 3 months after the date such
property was originally placed in
service,
such property shall be treated as originally
placed in service not earlier than the date on
which such property is used under the leaseback
referred to in subclause (II).
``(D) Coordination with section 280f.--For purposes
of section 280F--
``(i) Automobiles.--In the case of a
passenger automobile (as defined in section
280F(d)(5)) which is qualified property, the
Secretary shall increase the limitation under
section 280F(a)(1)(A)(i) by $4,600.
``(ii) Listed property.--The deduction
allowable under paragraph (1) shall be taken
into account in computing any recapture amount
under section 280F(b)(2).''
(b) Allowance Against Alternative Minimum Tax.--
(1) In general.--Section 56(a)(1)(A) (relating to
depreciation adjustment for alternative minimum tax) is amended
by adding at the end the following new clause:
``(iii) Additional allowance for certain
property acquired after september 10, 2001, and
before september 11, 2004.--The deduction under
section 168(k) shall be allowed.''
(2) Conforming amendment.--Clause (i) of section 56(a)(1)(A)
is amended by striking ``clause (ii)'' both places it appears
and inserting ``clauses (ii) and (iii)''.
(c) Effective Date.--The amendments made by this section shall apply
to property placed in service after September 10, 2001, in taxable
years ending after such date.
SEC. 102. TEMPORARY INCREASE IN EXPENSING UNDER SECTION 179.
(a) In General.--The table contained in section 179(b)(1) (relating
to dollar limitation) is amended to read as follows:
``If the taxable year
The applicable
begins in:
amount is:
2001............................... $24,000
2002 or 2003....................... $35,000
2004 or thereafter................. $25,000.''
(b) Temporary Increase in Amount of Property Triggering Phaseout of
Maximum Benefit.--Paragraph (2) of section 179(b) is amended by
inserting before the period ``($325,000 in the case of taxable years
beginning during 2002 or 2003)''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2001.
SEC. 103. REPEAL OF ALTERNATIVE MINIMUM TAX ON CORPORATIONS.
(a) In General.--So much of section 55 as precedes subsection (b)(2)
is amended to read as follows:
``SEC. 55. ALTERNATIVE MINIMUM TAX FOR TAXPAYERS OTHER THAN
CORPORATIONS.
``(a) In General.--In the case of a taxpayer other than a
corporation, there is hereby imposed (in addition to any other tax
imposed by this subtitle) a tax equal to the excess (if any) of--
``(1) the tentative minimum tax for the taxable year, over
``(2) the regular tax for the taxable year.
``(b) Tentative Minimum Tax.--For purposes of this part--
``(1) Amount of tentative tax.--
``(A) In general.--The tentative minimum tax for the
taxable year is the sum of--
``(i) 26 percent of so much of the taxable
excess as does not exceed $175,000, plus
``(ii) 28 percent of so much of the taxable
excess as exceeds $175,000.
The amount determined under the preceding sentence
shall be reduced by the alternative minimum tax foreign
tax credit for the taxable year.
``(B) Taxable excess.--For purposes of this
subsection, the term `taxable excess' means so much of
the alternative minimum taxable income for the taxable
year as exceeds the exemption amount.
``(C) Married individual filing separate return.--In
the case of a married individual filing a separate
return, clause (i) shall be applied by substituting
`$87,500' for `$175,000' each place it appears. For
purposes of the preceding sentence, marital status
shall be determined under section 7703.''
(b) Conforming Amendments.--
(1) Paragraph (3) of section 55(b) is amended by striking
``paragraph (1)(A)(i)'' and inserting ``paragraph (1)(A)''.
(2) Paragraph (1) of section 55(c) is amended by striking ``,
the section 936 credit allowable under section 27(b), and the
Puerto Rico economic activity credit under section 30A''.
(3)(A) Paragraph (1) of section 55(d) is amended by--
(i) by striking ``for taxpayers other than
corporations'' in the heading, and
(ii) by striking ``In the case of a taxpayer other
than a corporation, the'' and inserting ``The''.
(B) Section 55(d) is amended by striking paragraph (2) and by
redesignating paragraph (3) as paragraph (2).
(C) Subparagraph (A) of section 55(d)(2), as so redesignated
is amended by striking ``or (2)''.
(4) Section 55 is amended by striking subsection (e).
(5)(A) The designation and heading for subsection (a) of
section 56 is amended to read as follows:
``(a) General Rules.--''.
(B) Paragraph (1) of section 56(a) is amended by striking
subparagraph (D).
(C) Paragraph (6) of section 56(a) is amended--
(i) by striking ``paragraph (2) or subsection
(b)(2)'' and inserting ``paragraph (2) or (9)'', and
(ii) by striking ``or (5), or subsection (b)(2)'' and
inserting ``(5), or (9)''.
(6)(A) Subsection (b) of section 56 is amended by striking so
much of such subsection as precedes paragraph (1) and by
redesignating paragraphs (1), (2), and (3) as paragraphs (8),
(9), and (10), respectively, of subsection (a).
(B) Paragraph (9) of section 56(a), as so redesignated, is
amended by striking subparagraph (C) and by redesignating
subparagraph (D) as subparagraph (C).
(7) Section 56 is amended by striking subsections (c) and (g)
and by redesignating subsections (d) and (e) as subsections (b)
and (c), respectively.
(8) Subparagraph (E) of section 57(a)(2) is amended--
(A) by striking ``for independent producers'' in the
heading, and
(B) by striking clause (i) and inserting the
following new clause:
``(i) In general.--This paragraph shall not
apply to any taxable year beginning after
December 31, 1992.''
(9) Subsection (a) of section 58 is amended by striking
paragraph (3) and by redesignating paragraph (4) as paragraph
(3).
(10)(A) Section 59 is amended by striking subsections (b) and
(f) and by redesignating subsections (c), (d), (e), (g), (h),
(i), and (j) as subsections (b), (c), (d), (e), (f), (g), and
(h), respectively.
(B) Paragraph (2) of section 59(d), as so redesignated, is
amended by striking ``(determined without regard to section
291)''.
(C) Sections 173(b), 174(f)(2), 263(c), 263A(c)(6), 616(e),
617(i), and 1016(a)(20) are each amended by striking ``59(e)''
each place it appears and inserting ``59(d)''.
(11) Subsection (d) of section 11 is amended by striking
``the taxes imposed by subsection (a) and section 55'' and
inserting ``the tax imposed by subsection (a)''.
(12) Section 12 is amended by striking paragraph (7).
(13) Paragraph (6) of section 29(b) is amended to read as
follows:
``(6) Application with other credits.--The credit allowed by
subsection (a) for any taxable year shall not exceed the excess
(if any) of the regular tax for the taxable year reduced by the
sum of the credits allowable under subpart A and section 27. In
the case of a taxpayer other than a corporation, such excess
shall be further reduced (but not below zero) by the tentative
minimum tax for the taxable year.''
(14) Paragraph (3) of section 30(b) is amended to read as
follows:
``(3) Application with other credits.--The credit allowed by
subsection (a) for any taxable year shall not exceed the excess
(if any) of the regular tax for the taxable year reduced by the
sum of the credits allowable under subpart A and sections 27
and 29. In the case of a taxpayer other than a corporation,
such excess shall be further reduced (but not below zero) by
the tentative minimum tax for the taxable year.''
(15)(A) Paragraph (1) of section 38(c) is amended to read as
follows:
``(1) In general.--
``(A) Corporations.--In the case of a corporation,
the credit allowed under subsection (a) for any taxable
year shall not exceed the excess (if any) of the
taxpayer's net income tax over 25 percent of so much of
the taxpayer's net regular tax liability as exceeds
$25,000.
``(B) Taxpayers other than corporations.--In the case
of a taxpayer other than a corporation, the credit
allowed under subsection (a) for any taxable year shall
not exceed the excess (if any) of the taxpayer's net
income tax over the greater of--
``(i) the tentative minimum tax for the
taxable year, or
``(ii) 25 percent of so much of the
taxpayer's net regular tax liability as exceeds
$25,000.
``(C) Definitions.--For purposes of this paragraph--
``(i) the term `net income tax' means the sum
of the regular tax liability and the tax
imposed by section 55, reduced by the credits
allowable under subparts A and B of this part,
and
``(ii) the term `net regular tax liability'
means the regular tax liability reduced by the
sum of the credits allowable under subparts A
and B of this part.''
(B) Clause (ii) of section 38(c)(2)(A) is amended to read as
follows:
``(ii) for purposes of applying paragraph (1)
to such credit--
``(I) the applicable limitation under
paragraph (1) (as modified by subclause
(II) in the case of a taxpayer other
than a corporation) shall be reduced by
the credit allowed under subsection (a)
for the taxable year (other than the
empowerment zone employment credit),
and
``(II) in the case of a taxpayer
other than a corporation, 75 percent of
the tentative minimum tax shall be
substituted for the tentative minimum
tax under subparagraph (B)(i)
thereof.''
(C) Paragraph (3) of section 38(c) is amended by striking
``subparagraph (B) of'' each place it appears.
(16)(A) Subclause (I) of section 53(d)(1)(B)(ii) is amended
by striking ``subsection (b)(1)'' and inserting ``subsection
(a)(8)''.
(B) Clause (iv) of section 53(d)(1)(B) is hereby repealed.
(17)(A) Part VII of subchapter A of chapter 1 is hereby
repealed.
(B) The table of parts for subchapter A of chapter 1 is
amended by striking the item relating to part VII.
(C) Paragraph (2) of section 26(b) is amended by striking
subparagraph (B) and by redesignating the succeeding
subparagraphs accordingly.
(D) Subsection (c) of section 30A is amended by striking
paragraph (1) and redesignating the succeeding paragraphs
accordingly.
(E) Subsection (a) of section 164 is amended by striking
paragraph (5).
(F) Subsection (a) of section 275 is amended by striking
``Paragraph (1) shall not apply to the tax imposed by section
59A.''
(G) Paragraph (1) of section 882(a) is amended by striking
``59A,''.
(H) Paragraph (3) of section 936(a) is amended by striking
subparagraph (A) and redesignating the succeeding subparagraphs
accordingly.
(I) Subsection (a) of section 1561 is amended by adding
``and'' at the end of paragraph (2), by striking ``, and'' at
the end of paragraph (3) and inserting a period, and by
striking paragraph (4).
(J) Subparagraph (A) of section 6425(c)(1) is amended by
adding ``plus'' at the end of clause (i), by striking ``plus''
at the end of clause (ii) and inserting ``over'', and by
striking clause (iii).
(18) Section 382(l) (relating to limitation on net operating
loss carryforwards and certain built-in losses following
ownership change) is amended by striking paragraph (7) and by
redesignating paragraph (8) as paragraph (7).
(19) Paragraph (2) of section 815(c) (relating to
distributions to shareholders from pre-1984 policyholders
surplus account) is amended by striking the last sentence.
(20) Section 847 (relating to special estimated tax payments)
is amended--
(A) in paragraph (9), by striking the last sentence;
and
(B) in paragraph (10), by inserting ``and'' at the
end of subparagraph (A) and by striking subparagraph
(B) and redesignating subparagraph (C) as subparagraph
(B).
(21) Section 848 (relating to capitalization of certain
policy acquisition expenses) is amended by striking subsection
(i) and by redesignating subsection (j) as subsection (i).
(22) Paragraph (1) of section 882(a) (relating to tax on
income of foreign corporations connected with United States
business) is amended by striking ``55,''.
(23) Paragraph (1) of section 962(a) (relating to election by
individuals to be subject to tax at corporate rates) is amended
by striking ``sections 11 and 55'' and inserting ``section
11''.
(24) Subsection (a) of section 1561 (relating to limitations
on certain multiple tax benefits in the case of certain
controlled corporations) is amended by striking the last
sentence.
(25) Subparagraph (A) of section 6425(c)(1) (defining income
tax liability), as amended by paragraph (17) is amended to read
as follows:
``(A) the tax imposed by section 11 or 1201(a), or
subchapter L of chapter 1, whichever is applicable,
over''.
(26)(A) Paragraph (2) of section 6655(e) is amended--
(i) by striking ``, alternative minimum taxable
income, and modified alternative minimum taxable
income'' each place it appears in subparagraphs (A) and
(B)(i), and
(ii) by striking clause (iii) of subparagraph (B).
(B) Subparagraph (A) of section 6655(g)(1) (relating to
failure by corporation to pay estimated income tax), is amended
to read as follows:
``(A) the sum of--
``(i) the tax imposed by section 11 or
1201(a), or subchapter L of chapter 1,
whichever applies, plus
``(ii) the tax imposed by section 887,
over''.
(27) The table of sections for part VI of subchapter A of
chapter 1 is amended by striking the item relating to section
55 and inserting the following new item:
``Sec. 55. Alternative minimum tax for
taxpayers other than
corporations.''
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2000.
(d) Refund of Unused Minimum Tax Credit.--
(1) In general.--In the case of a corporation--
(A) section 53(c) of the Internal Revenue Code of
1986 shall not apply to such corporation's first
taxable year beginning after December 31, 2000, and
(B) for purposes of such Code (other than section 53
of such Code), the credit allowed by section 53 of such
Code for such first taxable year shall be treated as if
it were allowed by subpart C of part IV of subchapter A
of chapter 1 of such Code (relating to refundable
credits).
(2) Special rules relating to carrybacks.--In the case of a
carryback of a corporation from a taxable year beginning after
December 31, 2000, to a taxable year beginning before January
1, 2001--
(A) the tax imposed by section 55 of such Code shall
not be increased or decreased by reason of such a
carryback,
(B) tentative minimum tax shall not be increased or
decreased by reason of such a carryback for purposes of
determining the amount of any credit other than the
credit allowed by section 38, and
(C) the amount of such a carryback which is taken
into account in determining tentative minimum tax for
purposes of section 38(c) shall be the amount of such
carryback which is taken into account in determining
regular tax liability.
SEC. 104. CARRYBACK OF CERTAIN NET OPERATING LOSSES ALLOWED FOR 5
YEARS.
(a) In General.--Paragraph (1) of section 172(b) (relating to years
to which loss may be carried) is amended by adding at the end the
following new subparagraph:
``(H) In the case of a taxpayer which has a net
operating loss for any taxable year ending after
September 10, 2001, and before September 11, 2004,
subparagraph (A)(i) shall be applied by substituting
`5' for `2' and subparagraph (F) shall not apply.''.
(b) Election To Disregard 5-Year Carryback.--Section 172 (relating to
net operating loss deduction) is amended by redesignating subsection
(j) as subsection (k) and by inserting after subsection (i) the
following new subsection:
``(j) Election To Disregard 5-Year Carryback for Certain Net
Operating Losses.--Any taxpayer entitled to a 5-year carryback under
subsection (b)(1)(H) from any loss year may elect to have the carryback
period with respect to such loss year determined without regard to
subsection (b)(1)(H). Such election shall be made in such manner as may
be prescribed by the Secretary and shall be made by the due date
(including extensions of time) for filing the taxpayer's return for the
taxable year of the net operating loss. Such election, once made for
any taxable year, shall be irrevocable for such taxable year.''.
(c) Temporary Suspension of 90 Percent Limit on Certain NOL
Carrybacks.--Subparagraph (A) of section 56(b)(1) (relating to general
rule defining alternative tax net operating loss deduction), as amended
by section 103, is amended to read as follows:
``(A) the amount of such deduction shall not exceed
the sum of--
``(i) the lesser of--
``(I) the amount of such deduction
attributable to net operating losses
(other than the deduction attributable
to carrybacks described in clause
(ii)(I)), or
``(II) 90 percent of alternate
minimum taxable income determined
without regard to such deduction, plus
``(ii) the lesser of--
``(I) the amount of such deduction
attributable to carrybacks of net
operating losses for taxable years
ending after September 10, 2001, and
before September 11, 2004, or
``(II) alternate minimum taxable
income determined without regard to
such deduction reduced by the amount
determined under clause (i), and''.
(d) Effective Date.--The amendments made by this section shall apply
to net operating losses for taxable years ending after September 10,
2001.
SEC. 105. RECOVERY PERIOD FOR DEPRECIATION OF CERTAIN LEASEHOLD
IMPROVEMENTS.
(a) 15-Year Recovery Period.--Subparagraph (E) of section 168(e)(3)
(relating to 15-year property) is amended by striking ``and'' at the
end of clause (ii), by striking the period at the end of clause (iii)
and inserting ``, and'', and by adding at the end the following new
clause:
``(iv) any qualified leasehold improvement
property.''.
(b) Qualified Leasehold Improvement Property.--Subsection (e) of
section 168 is amended by adding at the end the following new
paragraph:
``(6) Qualified leasehold improvement property.--
``(A) In general.--The term `qualified leasehold
improvement property' means any improvement to an
interior portion of a building which is nonresidential
real property if--
``(i) such improvement is made under or
pursuant to a lease (as defined in subsection
(h)(7))--
``(I) by the lessee (or any
sublessee) of such portion, or
``(II) by the lessor of such portion,
``(ii) such portion is to be occupied
exclusively by the lessee (or any sublessee) of
such portion, and
``(iii) such improvement is placed in service
more than 3 years after the date the building
was first placed in service.
``(B) Certain improvements not included.--Such term
shall not include any improvement for which the
expenditure is attributable to--
``(i) the enlargement of the building,
``(ii) any elevator or escalator,
``(iii) any structural component benefiting a
common area, and
``(iv) the internal structural framework of
the building.
``(C) Definitions and special rules.--For purposes of
this paragraph--
``(i) Commitment to lease treated as lease.--
A commitment to enter into a lease shall be
treated as a lease, and the parties to such
commitment shall be treated as lessor and
lessee, respectively.
``(ii) Related persons.--A lease between
related persons shall not be considered a
lease. For purposes of the preceding sentence,
the term `related persons' means--
``(I) members of an affiliated group
(as defined in section 1504), and
``(II) persons having a relationship
described in subsection (b) of section
267; except that, for purposes of this
clause, the phrase `80 percent or more'
shall be substituted for the phrase
`more than 50 percent' each place it
appears in such subsection.
``(D) Improvements made by lessor.--
``(i) In general.--In the case of an
improvement made by the person who was the
lessor of such improvement when such
improvement was placed in service, such
improvement shall be qualified leasehold
improvement property (if at all) only so long
as such improvement is held by such person.
``(ii) Exception for changes in form of
business.--Property shall not cease to be
qualified leasehold improvement property under
clause (i) by reason of--
``(I) death,
``(II) a transaction to which section
381(a) applies, or
``(III) a mere change in the form of
conducting the trade or business so
long as the property is retained in
such trade or business as qualified
leasehold improvement property and the
taxpayer retains a substantial interest
in such trade or business.''
(c) Requirement To Use Straight Line Method.--Paragraph (3) of
section 168(b) is amended by adding at the end the following new
subparagraph:
``(G) Qualified leasehold improvement property
described in subsection (e)(6).''.
(d) Alternative System.--The table contained in section 168(g)(3)(B)
is amended by adding at the end the following new item:
``(E)(iv).......................................... 15''.
(e) Effective Date.--The amendments made by this section shall apply
to qualified leasehold improvement property placed in service after
September 10, 2001.
TITLE II--INDIVIDUAL PROVISIONS
SEC. 201. ACCELERATION OF 25 PERCENT INDIVIDUAL INCOME TAX RATE.
(a) In General.--The table contained in paragraph (2) of section 1(i)
(relating to reductions in rates after June 30, 2001) is amended--
(1) by striking ``27.0%'' and inserting ``25.0%'', and
(2) by striking ``26.0%'' and inserting ``25.0%''.
(b) Reduction Not To Increase Minimum Tax.--
(1) Subparagraph (A) of section 55(d)(1) is amended by
striking ``($49,000 in the case of taxable years beginning in
2001, 2002, 2003, and 2004)'' and inserting ``($49,000 in the
case of taxable years beginning in 2001, $52,200 in the case of
taxable years beginning in 2002 or 2003, and $50,700 in the
case of taxable years beginning in 2004)''.
(2) Subparagraph (B) of section 55(d)(1) is amended by
striking ``($35,750 in the case of taxable years beginning in
2001, 2002, 2003, and 2004)'' and inserting ``($35,750 in the
case of taxable years beginning in 2001, $37,350 in the case of
taxable years beginning in 2002 or 2003, and $36,600 in the
case of taxable years beginning in 2004)''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2001.
(d) Section 15 Not To Apply.--No amendment made by this section shall
be treated as a change in a rate of tax for purposes of section 15 of
the Internal Revenue Code of 1986.
SEC. 202. REPEAL OF 5-YEAR HOLDING PERIOD REQUIREMENT FOR REDUCED
INDIVIDUAL CAPITAL GAINS RATES.
(a) In General.--
(1) Sections 1(h)(1)(B) and 55(b)(3)(B) are each amended by
striking ``10 percent'' and inserting ``8 percent''.
(2) The following sections are each amended by striking ``20
percent'' and inserting ``18 percent'':
(A) Section 1(h)(1)(C).
(B) Section 55(b)(3)(C).
(C) Section 1445(e)(1).
(D) The second sentence of section 7518(g)(6)(A).
(E) The second sentence of section 607(h)(6)(A) of
the Merchant Marine Act, 1936.
(b) Conforming Amendments.--
(1) Subsection (e) of section 311 of the Taxpayer Relief Act
of 1997 is repealed.
(2) Section 1(h) is amended--
(A) by striking paragraphs (2) and (9),
(B) by redesignating paragraphs (3) through (8) as
paragraphs (2) through (7), respectively, and
(C) by redesignating paragraphs (10), (11), and (12)
as paragraphs (8), (9), and (10), respectively.
(3) Paragraph (3) of section 55(b) is amended by striking
``In the case of taxable years beginning after December 31,
2000, rules similar to the rules of section 1(h)(2) shall apply
for purposes of subparagraphs (B) and (C).''.
(4) Paragraph (7) of section 57(a) is amended by striking the
last sentence and by striking ``42 percent'' and inserting ``28
percent''.
(c) Transitional Rules for Taxable Years Which Include October 12,
2001.--For purposes of applying section 1(h) of the Internal Revenue
Code of 1986 in the case of a taxable year which includes October 12,
2001--
(1) The amount of tax determined under subparagraph (B) of
section 1(h)(1) of such Code shall be the sum of--
(A) 8 percent of the lesser of--
(i) the sum of--
(I) the net capital gain taking into
account only gain or loss properly
taken into account for the portion of
the taxable year on or after October
12, (determined without regard to
collectibles gain or loss, gain
described in section (1)(h)(6)(A)(i) of
such Code, and section 1202 gain), and
(II) the qualified 5-year gain (as
defined in section 1(h)(9) of the
Internal Revenue Code of 1986, as in
effect on the day before the date of
the enactment of this Act) properly
taken into account for the portion of
the taxable year before October 12,
2001, or
(ii) the amount on which a tax is determined
under such subparagraph (without regard to this
subsection), plus
(B) 10 percent of the excess (if any) of--
(i) the amount on which a tax is determined
under such subparagraph (without regard to this
subsection), over
(ii) the amount on which a tax is determined
under subparagraph (A).
(2) The amount of tax determined under subparagraph (C) of
section (1)(h)(1) of such Code shall be the sum of--
(A) 18 percent of the lesser of--
(i) the excess (if any) of the amount of net
capital gain determined under subparagraph
(A)(i)(I) of paragraph (1) of this subsection
over the amount on which a tax is determined
under subparagraph (A) of paragraph (1) of this
subsection, or
(ii) the amount on which a tax is determined
under such subparagraph (C) (without regard to
this subsection), plus
(B) 20 percent of the excess (if any) of--
(i) the amount on which a tax is determined
under such subparagraph (C) (without regard to
this subsection), over
(ii) the amount on which a tax is determined
under subparagraph (A) of this paragraph.
(3) For purposes of applying section 55(b)(3) of such Code,
rules similar to the rules of paragraphs (1) and (2) of this
subsection shall apply.
(4) In applying this subsection with respect to any pass-thru
entity, the determination of when gains and loss are properly
taken into account shall be made at the entity level.
(5) Terms used in this subsection which are also used in
section 1(h) of such Code shall have the respective meanings
that such terms have in such section.
(d) Effective Dates.--
(1) In general.--Except as otherwise provided by this
subsection, the amendments made by this section shall apply to
taxable years ending on or after October 12, 2001.
(2) Withholding.--The amendment made by subsection (a)(2)(C)
shall apply to amounts paid after the date of the enactment of
this Act.
(3) Election to recognize gain on assests held on january 1,
2001.--The repeal made by subsection (b)(1) shall take effect
as if included in section 311 of the Taxpayer Relief Act of
1997, and the Internal Revenue Code of 1986 shall be applied
and administered as if subsection (e) of such section 311 had
never been enacted.
(4) Small business stock.--The amendments made by subsection
(b)(4) shall apply to dispositions on or after October 12,
2001.
SEC. 203. TEMPORARY INCREASE IN DEDUCTION FOR CAPITAL LOSSES OF
TAXPAYERS OTHER THAN CORPORATIONS.
(a) In General.--Subsection (b) of section 1211 (relating to
limitation on capital losses for taxpayers other than corporations) is
amended by adding at the end the following flush sentence:
``Paragraph (1) shall be applied by substituting `$4,000' for `$3,000'
and `$2,000' for `$1,500' in the case of taxable years beginning in
2001, and by substituting `$5,000' for `$3,000' and `$2,500' for
`$1,500' in the case of taxable years beginning in 2002.''.
(b) Effective Date.--The amendment made by subsection (a) shall apply
to taxable years beginning after December 31, 2000.
SEC. 204. TEMPORARY EXPANSION OF PENALTY-FREE RETIREMENT PLAN
DISTRIBUTIONS FOR HEALTH INSURANCE PREMIUMS OF
UNEMPLOYED INDIVIDUALS.
(a) In General.--Subparagraph (D) of section 72(t)(2) is amended by
adding at the end the following new clause:
``(iv) Special rules for individuals
receiving unemployment compensation after
september 10, 2001, and before january 1,
2003.--In the case of an individual who
receives unemployment compensation for 4
consecutive weeks after September 10, 2001, and
before January 1, 2003--
``(I) clause (i) shall apply to
distributions from all qualified
retirement plans (as defined in section
4974(c)), and
``(II) such 4 consecutive weeks shall
be substituted for the 12 consecutive
weeks referred to in subclause (I) of
clause (i).''
(b) Effective Date.--The amendment made by this section shall apply
to distributions after the date of the enactment of this Act.
TITLE III--EXTENSIONS OF CERTAIN EXPIRING PROVISIONS
Subtitle A--Two-Year Extensions
SEC. 301. ALLOWANCE OF NONREFUNDABLE PERSONAL CREDITS AGAINST REGULAR
AND MINIMUM TAX LIABILITY.
(a) In General.--Paragraph (2) of section 26(a) is amended--
(1) by striking ``rule for 2000 and 2001.--'' and inserting
``rule for 2000, 2001, 2002, and 2003.--'', and
(2) by striking ``during 2000 or 2001,'' and inserting
``during 2000, 2001, 2002, or 2003,''.
(b) Conforming Amendments.--
(1) Section 904(h) is amended by striking ``during 2000 or
2001'' and inserting ``during 2000, 2001, 2002, or 2003''.
(2) The amendments made by sections 201(b), 202(f), and
618(f) of the Economic Growth and Tax Relief Reconciliation Act
of 2001 shall not apply to taxable years beginning during 2002
and 2003.
(c) Technical Correction.--Section 24(d)(1)(B) is amended by striking
``amount of credit allowed by this section'' and inserting ``aggregate
amount of credits allowed by this subpart''.
(d) Effective Dates.--
(1) The amendments made by subsections (a) and (b) shall
apply to taxable years beginning after December 31, 2001.
(2) The amendment made by subsection (c) shall apply to
taxable years beginning after December 31, 2000.
SEC. 302. CREDIT FOR QUALIFIED ELECTRIC VEHICLES.
(a) In General.--Section 30 is amended--
(1) in subsection (b)(2)--
(A) by striking ``December 31, 2001,'' and inserting
``December 31, 2003,'', and
(B) in subparagraphs (A), (B), and (C), by striking
``2002'', ``2003'', and ``2004'', respectively, and
inserting ``2004'', ``2005'', and ``2006'',
respectively, and
(2) in subsection (e), by striking ``December 31, 2004'' and
inserting ``December 31, 2006''.
(b) Conforming Amendments.--
(1) Subparagraph (C) of section 280F(a)(1) is amended by
adding at the end the following new clause
``(iii) Application of subparagraph.--This
subparagraph shall apply to property placed in
service after August 5, 1997, and before
January 1, 2007.''.
(2) Subsection (b) of section 971 of the Taxpayer Relief Act
of 1997 is amended by striking ``and before January 1, 2005''.
(c) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 303. CREDIT FOR ELECTRICITY PRODUCED FROM RENEWABLE RESOURCES.
(a) In General.--Subparagraphs (A), (B), and (C) of section 45(c)(3)
are each amended by striking ``2002'' and inserting ``2004''.
(b) Effective Date.--The amendments made by subsection (a) shall take
effect on the date of the enactment of this Act.
SEC. 304. WORK OPPORTUNITY CREDIT.
(a) In General.--Subparagraph (B) of section 51(c)(4) is amended by
striking ``2001'' and inserting ``2003''.
(b) Effective Date.--The amendment made by subsection (a) shall apply
to individuals who begin work for the employer after December 31, 2001.
SEC. 305. WELFARE-TO-WORK CREDIT.
(a) In General.--Subsection (f) of section 51A is amended by striking
``2001'' and inserting ``2003''.
(b) Effective Date.--The amendment made by subsection (a) shall apply
to individuals who begin work for the employer after December 31, 2001.
SEC. 306. DEDUCTION FOR CLEAN-FUEL VEHICLES AND CERTAIN REFUELING
PROPERTY.
(a) In General.--Section 179A is amended--
(1) in subsection (b)(1)(B)--
(A) by striking ``December 31, 2001,'' and inserting
``December 31, 2003,'', and
(B) in clauses (i), (ii), and (iii), by striking
``2002'', ``2003'', and ``2004'', respectively, and
inserting ``2004'', ``2005'', and ``2006'',
respectively, and
(2) in subsection (f), by striking ``December 31, 2004'' and
inserting ``December 31, 2006''.
(b) Effective Date.--The amendments made by subsection (a) shall take
effect on the date of the enactment of this Act.
SEC. 307. TAXABLE INCOME LIMIT ON PERCENTAGE DEPLETION FOR OIL AND
NATURAL GAS PRODUCED FROM MARGINAL PROPERTIES.
(a) In General.--Subparagraph (H) of section 613A(c)(6) is amended by
striking ``2002'' and inserting ``2004''.
(b) Effective Date.--The amendment made by subsection (a) shall apply
to taxable years beginning after December 31, 2001.
SEC. 308. QUALIFIED ZONE ACADEMY BONDS.
(a) In General.--Paragraph (1) of section 1397E(e) is amended by
striking ``2000, and 2001'' and inserting ``2000, 2001, 2002, and
2003''.
(b) Effective Date.--The amendment made by subsection (a) shall take
effect on the date of the enactment of this Act.
SEC. 309. COVER OVER OF TAX ON DISTILLED SPIRITS.
(a) In General.--Paragraph (1) of section 7652(f) is amended by
striking ``January 1, 2002'' and inserting ``January 1, 2004''.
(b) Effective Date.--The amendment made by subsection (a) shall take
effect on the date of the enactment of this Act.
SEC. 310. PARITY IN THE APPLICATION OF CERTAIN LIMITS TO MENTAL HEALTH
BENEFITS.
(a) In General.--Subsection (f) of section 9812 is amended by
striking ``2001'' and inserting ``2003''.
(b) Effective Date.--The amendment made by subsection (a) shall apply
to plan years beginning after December 31, 2001.
SEC. 311. DELAY IN EFFECTIVE DATE OF REQUIREMENT FOR APPROVED DIESEL OR
KEROSENE TERMINALS.
Paragraph (2) of section 1032(f) of the Taxpayer Relief Act of 1997
(Public Law 105-34) is amended by striking ``January 1, 2002'' and
inserting ``January 1, 2004''.
Subtitle B--One-Year Extensions
SEC. 321. ONE-YEAR EXTENSION OF AVAILABILITY OF MEDICAL SAVINGS
ACCOUNTS.
(a) In General.--Paragraphs (2) and (3)(B) of section 220(i)
(defining cut-off year) are each amended by striking ``2002'' each
place it appears and inserting ``2003''.
(b) Conforming Amendments.--
(1) Paragraph (2) of section 220(j) is amended by striking
``1998, 1999, or 2001'' each place it appears and inserting
``1998, 1999, 2001, or 2002''.
(2) Subparagraph (A) of section 220(j)(4) is amended by
striking ``and 2001'' and inserting ``2001, and 2002''.
(c) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
Subtitle C--Permanent Extensions
SEC. 331. SUBPART F EXEMPTION FOR ACTIVE FINANCING.
(a) In General.--
(1) Section 953(e)(10) is amended--
(A) by striking ``, and before January 1, 2002,'',
and
(B) by striking the second sentence.
(2) Section 954(h)(9) is amended by striking ``, and before
January 1, 2002,''.
(b) Life Insurance and Annuity Contracts.--
(1) In General.--Subparagraph (B) of section 954(i)(4) is
amended to read as follows:
``(B) Life insurance and annuity contracts.--
``(i) In general.--Except as provided in
clause (ii), the amount of the reserve of a
qualifying insurance company or qualifying
insurance company branch for any life insurance
or annuity contract shall be equal to the
greater of--
``(I) the net surrender value of such
contract (as defined in section
807(e)(1)(A)), or
``(II) the reserve determined under
paragraph (5).
``(ii) Ruling request.--The amount of the
reserve under clause (i) shall be the foreign
statement reserve for the contract (less any
catastrophe, deficiency, equalization, or
similar reserves), if, pursuant to a ruling
request submitted by the taxpayer, the
Secretary determines that the factors taken
into account in determining the foreign
statement reserve provide an appropriate means
of measuring income.''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2001.
Subtitle D--Other Provisions
SEC. 341. EXCLUDED CANCELLATION OF INDEBTEDNESS INCOME OF S CORPORATION
NOT TO RESULT IN ADJUSTMENT TO BASIS OF STOCK OF
SHAREHOLDERS.
(a) In General.--Subparagraph (A) of section 108(d)(7) (relating to
certain provisions to be applied at corporate level) is amended by
inserting before the period ``, including by not taking into account
under section 1366(a) any amount excluded under subsection (a) of this
section''.
(b) Effective Date.--The amendment made by this section shall apply
to discharges of indebtedness after October 11, 2001, in taxable years
ending after such date.
SEC. 342. LIMITATION ON USE OF NONACCRUAL EXPERIENCE METHOD OF
ACCOUNTING.
(a) In General.--Paragraph (5) of section 448(d) is amended to read
as follows:
``(5) Special rule for certain services.--
``(A) In general.--In the case of any person using an
accrual method of accounting with respect to amounts to
be received for the performance of services by such
person, such person shall not be required to accrue any
portion of such amounts which (on the basis of such
person's experience) will not be collected if--
``(i) such services are in fields referred to
in paragraph (2)(A), or
``(ii) such person meets the gross receipts
test of subsection (c) for all prior taxable
years.
``(B) Exception.--This paragraph shall not apply to
any amount if interest is required to be paid on such
amount or there is any penalty for failure to timely
pay such amount.
``(C) Regulations.--The Secretary shall prescribe
regulations to permit taxpayers to determine amounts
referred to in subparagraph (A) using computations or
formulas which, based on experience, accurately reflect
the amount of income that will not be collected by such
person. A taxpayer may adopt, or request consent of the
Secretary to change to, a computation or formula that
clearly reflects the taxpayer's experience. A request
under the preceding sentence shall be approved only if
such computation or formula clearly reflects the
taxpayer's experience.''.
(b) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to taxable years ending after the date of the enactment
of this Act.
(2) Change in method of accounting.--In the case of any
taxpayer required by the amendments made by this section to
change its method of accounting for its first taxable year
ending after the date of the enactment of this Act--
(A) such change shall be treated as initiated by the
taxpayer,
(B) such change shall be treated as made with the
consent of the Secretary of the Treasury, and
(C) the net amount of the adjustments required to be
taken into account by the taxpayer under section 481 of
the Internal Revenue Code of 1986 shall be taken into
account over a period of 4 years (or if less, the
number of taxable years that the taxpayer used the
method permitted under section 448(d)(5) of such Code
as in effect before the date of the enactment of this
Act) beginning with such first taxable year.
TITLE IV--SUPPLEMENTAL REBATE; OTHER PROVISIONS
SEC. 401. SUPPLEMENTAL REBATE.
(a) In General.--Section 6428 (relating to acceleration of 10 percent
income tax rate bracket benefit for 2001) is amended by adding at the
end the following new subsection:
``(f) Supplemental Rebate.--
``(1) In general.--Each individual who was an eligible
individual for such individual's first taxable year beginning
in 2000 and who, before October 16, 2001, filed a return of tax
imposed by subtitle A for such taxable year shall be treated as
having made a payment against the tax imposed by chapter 1 for
such first taxable year in an amount equal to the supplemental
refund amount for such taxable year.
``(2) Supplemental refund amount.--For purposes of this
subsection, the supplemental refund amount is an amount equal
to the excess (if any) of--
``(A)(i) $600 in the case of taxpayers to whom
section 1(a) applies,
``(ii) $500 in the case of taxpayers to whom section
1(b) applies, and
``(iii) $300 in the case of taxpayers to whom
subsections (c) or (d) of section 1 applies, over
``(B) the taxpayer's advance refund amount under
subsection (e).
``(3) Timing of payments.--In the case of any overpayment
attributable to this subsection, the Secretary shall, subject
to the provisions of this title, refund or credit such
overpayment as rapidly as possible.
``(4) No interest.--No interest shall be allowed on any
overpayment attributable to this subsection.''
(b) Conforming Amendments.--
(1) Subparagraph (A) of section 6428(d)(1) is amended by
striking ``subsection (e)'' and inserting ``subsections (e) and
(f)''.
(2) Subparagraph (B) of section 6428(d)(1) is amended by
striking ``subsection (e)'' and inserting ``subsection (e) or
(f)''.
(3) Paragraph (3) of section 6428(e) is amended by striking
``December 31, 2001'' and inserting ``the date of the enactment
of the Economic Security and Recovery Act of 2001''.
(c) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 402. SPECIAL REED ACT TRANSFER IN FISCAL YEAR 2002.
(a) Repeal of Certain Provisions Added by the Balanced Budget Act of
1997.--
(1) In general.--The following provisions of section 903 of
the Social Security Act (42 U.S.C. 1103) are repealed:
(A) Paragraph (3) of subsection (a).
(B) The last sentence of subsection (c)(2).
(2) Savings provision.--Any amounts transferred before the
date of enactment of this Act under the provision repealed by
paragraph (1)(A) shall remain subject to section 903 of the
Social Security Act, as last in effect before such date of
enactment.
(b) Special Transfer in Fiscal Year 2002.--Section 903 of the Social
Security Act is amended by adding at the end the following:
``Special Transfer in Fiscal Year 2002
``(d)(1) The Secretary of the Treasury shall transfer (as of the date
determined under paragraph (5)(A)) from the Federal unemployment
account to the account of each State in the Unemployment Trust Fund the
amount determined with respect to such State under paragraph (2).
``(2) The amount to be transferred under this subsection to a State
account shall (as determined by the Secretary of Labor and certified by
such Secretary to the Secretary of the Treasury) be equal to--
``(A) the amount which would have been required to have been
transferred under this section to such account at the beginning
of fiscal year 2002 if section 402(a)(1) of the Economic
Security and Recovery Act of 2001 had been enacted before the
close of fiscal year 2001, minus
``(B) the amount which was in fact transferred under this
section to such account at the beginning of fiscal year 2002.
``(3)(A) Except as provided in paragraph (4), amounts transferred to
a State account pursuant to this subsection may be used only in the
payment of cash benefits--
``(i) to individuals with respect to their unemployment, and
``(ii) which are allowable under subparagraph (B) or (C).
``(B)(i) At the option of the State, cash benefits under this
paragraph may include amounts which shall be payable as regular or
additional compensation for individuals eligible for regular
compensation under the unemployment compensation law of such State.
``(ii) Any additional compensation under clause (i) may not be taken
into account for purposes of any determination relating to the amount
of any extended compensation for which an individual might be eligible.
``(C)(i) At the option of the State, cash benefits under this
paragraph may include amounts which shall be payable to 1 or more
categories of individuals not otherwise eligible for regular
compensation under the unemployment compensation law of such State.
``(ii) The benefits paid under this subparagraph to any individual
may not, for any period of unemployment, exceed the maximum amount of
regular compensation authorized under the unemployment compensation law
of such State for that same period, plus any additional benefits
(described in subparagraph (B)(i)) which could have been paid with
respect to that amount.
``(D) Amounts transferred to a State account under this subsection
may be used in the payment of cash benefits to individuals only for
weeks of unemployment--
``(i) beginning after the date of enactment of this
subsection, and
``(ii) ending on or before March 11, 2003.
``(4) Amounts transferred to a State account under this subsection
may be used for the administration of its unemployment compensation law
and public employment offices (including in connection with benefits
described in paragraph (3) and any recipients thereof), subject to the
same conditions as set forth in subsection (c)(2) (excluding
subparagraph (B) thereof, and deeming the reference to `subsections (a)
and (b)' in subparagraph (D) thereof to include this subsection).
``(5) Transfers under this subsection--
``(A) shall be made on such date as the Secretary of Labor
(in consultation with the Secretary of the Treasury) shall
determine, but in no event later than 10 days after the date of
enactment of this subsection, and
``(B) may, notwithstanding any other provision of this
subsection, be made only to the extent that they do not to
exceed--
``(i) the balance in the Federal unemployment account
as of the date determined under subparagraph (A), or
``(ii) the total amount that was transferred under
this section to the Federal unemployment account at the
beginning of fiscal year 2002,
whichever is less.''
(c) Limitations on Transfers.--Section 903(b) of the Social Security
Act shall apply to transfers under section 903(d) of such Act (as
amended by this section). For purposes of the preceding sentence, such
section 903(b) shall be deemed to be amended as follows:
(1) By substituting ``the transfer date described in
subsection (d)(5)(A)'' for ``October 1 of any fiscal year''.
(2) By substituting ``remain in the Federal unemployment
account'' for ``be transferred to the Federal unemployment
account as of the beginning of such October 1''.
(3) By substituting ``fiscal year 2002 (after the transfer
date described in subsection (d)(5)(A))'' for ``the fiscal year
beginning on such October 1''.
(4) By substituting ``under subsection (d)'' for ``as of
October 1 of such fiscal year''.
(5) By substituting ``(as of the close of fiscal year 2002)''
for ``(as of the close of such fiscal year)''.
(d) Technical Amendments.--(1) Sections 3304(a)(4)(B) and 3306(f)(2)
of the Internal Revenue Code of 1986 are amended by inserting ``or
903(d)(4)'' before ``of the Social Security Act''.
(2) Section 303(a)(5) of the Social Security Act is amended in the
second proviso by inserting ``or 903(d)(4)'' after ``903(c)(2)''.
(e) Regulations.--The Secretary of Labor may prescribe any operating
instructions or regulations necessary to carry out this section and the
amendments made by this section.
TITLE V--HEALTH CARE ASSISTANCE FOR THE UNEMPLOYED
SEC. 501. HEALTH CARE ASSISTANCE FOR THE UNEMPLOYED.
Title XX of the Social Security Act (42 U.S.C. 1397-1397f) is amended
by adding at the end the following:
``SEC. 2008. GRANTS FOR HEALTH CARE ASSISTANCE FOR THE UNEMPLOYED.
``(a) Funding.--For purposes of section 2003, the amount specified in
section 2003(c) for fiscal year 2002 is increased by $3,000,000,000.
``(b) Use of Funds.--Notwithstanding any other provision of this
title, to the extent that an amount paid to a State under section 2002
is attributable to funds made available by reason of subsection (a) of
this section--
``(1) the State shall use the amount to assist an unemployed
individual who is not eligible for Federal health coverage to
purchase health care coverage for the individual or any member
of the family of the individual who is not so eligible; and
``(2) the amount--
``(A) shall be used to supplement, not supplant, any
other Federal, State, or local funds that are used for
the provision of health care coverage; and
``(B) may not be included in determining the amount
of non-Federal contributions required under any
program.
``(c) Definitions.--In this section:
``(1) Unemployed individual.--The term `unemployed
individual' means an individual who--
``(A) is without a job (determined in accordance with
the criteria used by the Bureau of Labor Statistics of
the Department of Labor in defining individuals as
unemployed);
``(B) is seeking and available for work; and
``(C) has or had a benefit year (within the meaning
of section 205 of the Federal-State Extended
Unemployment Compensation Act of 1970) beginning on or
after January 1, 2001.
``(2) Federal health coverage.--
``(A) In general.--Subject to subparagraph (B), the
term `Federal health coverage' means coverage under any
medical care program described in--
``(i) title XVIII, XIX, or XXI of this Act
(other than under section 1928);
``(ii) chapter 55 of title 10, United States
Code;
``(iii) chapter 17 of title 38, United States
Code;
``(iv) chapter 89 of title 5, United States
Code (other than coverage which is comparable
to continuation coverage under section 4980B of
the Internal Revenue Code of 1986); or
``(v) the Indian Health Care Improvement Act.
``(B) Special rule.--Such term does not include
coverage under a qualified long-term care insurance
contract.''.
I. SUMMARY AND BACKGROUND
A. Purpose and Summary
The bill, H.R. 3090, as amended (the ``Economic Security
and Recovery Act of 2001''), provides tax incentives for
economic recovery.
The bill provides net tax reductions and outlays of over
$159.4 billion over fiscal years 2002-2011. The bill will
provide tax relief for businesses and individuals that will
stimulate many sectors of the economy.
The bill allows an additional first-year depreciation
deduction for certain qualified property and increases the
maximum amount that may be deducted under section 179. The bill
provides a 15-year life for leasehold improvements. The bill
temporarily extends the general net operating loss carryback
period to five years. The bill also repeals the corporate
alternative minimum tax. The bill extends permanently the
present-law temporary exceptions from subpart F foreign
personal holding company income, foreign base company services
income, and insurance income for certain income that is derived
in the active conduct of a banking, financing or similar
business, or in the conduct of an insurance business.
The bill provides a rebate for certain individuals who
filed a tax return for 2000. The bill accelerates the 25-
percent individual income tax rate and increases the
alternative minimum tax exemption amount for individuals. The
bill also increases the deduction of capital losses of
individuals that may offset ordinary income. The bill
eliminates the 5-year holding period for reduced individual
capital gains rates. The bill also expands the exception to the
early withdrawal tax for IRA distributions used for health
insurance for unemployed individuals.
The bill provides a two-year extension of provisions
expiring in 2001, including: alternative minimum tax relief for
individuals; the work opportunity tax credit; the welfare-to-
work tax credit; the tax credit for production of electricity
from wind, closed loop biomass, and poultry litter; suspension
of taxable income limit on percentage depletion for marginal
production; authority to issue qualified zone academy bonds;
increased carryover payments to Puerto Rico and the Virgin
Islands; suspension of the effective date of the diesel fuel
and kerosene dying mandate; the deduction for qualified clean-
fuel vehicle property and qualified clean-fuel vehicle
refueling property; the credit for purchase of electric
vehicles; and the tax on failures to comply with mental health
parity requirements. The bill also extends the Archer MSA
program for one year.
The bill limits the use of the non-accrual experience
method of accounting. The bill also provides that income from
the discharge of indebtedness of an S corporation that is
excluded from the S corporation's income does not increase a
shareholder's stock basis. These provisions provide revenue
offsets for the economic stimulus provisions of the bill and
also improve the operation of the Federal income tax system by
closing loopholes and achieving a more accurate measurement of
income in those situations affected by the provisions.
The bill repeals a provision of the 1997 Balanced Budget
Act which limited distributions of surplus Federal unemployment
trust funds to the States. Approximately $9 billion will be
available to States. The bill increases by $3 billion, in
fiscal year 2002 only, funding for the Social Services Block
Grant Program to assist States in providing health care
coverage for unemployed workers and their families who do not
have health care coverage.
B. Background and Need for Legislation
The terrorist attacks of September 11, 2001 have affected
the United States in numerous ways. In addition to the
tremendous number of lives lost, the September 11, 2001 attacks
have caused adverse effects to the U.S. economy. Thousands of
Americans have lost jobs. Consumer confidence and investor
confidence are low. The Committee believes that it is necessary
to spur economic growth and job creation and help struggling
business and unemployed workers. The provisions approved by the
Committee will stimulate and strengthen the economy.
C. Legislative History
COMMITTEE ACTION
The Committee on Ways and Means marked up the provisions of
the bill on October 12, 2001, and reported the provisions, as
amended, on October 12, 2001, by a rollcall vote of 23 yeas and
14 nays, with a quorum present.
II. EXPLANATION OF THE BILL
TITLE I: BUSINESS PROVISIONS
A. Special Depreciation Allowance for Certain Property (Sec. 101 of the
Bill and Sec. 168 and Sec. 280F of the Code)
Present Law
Depreciation deductions
A taxpayer is allowed to recover, through annual
depreciation deductions, the cost of certain property used in a
trade or business or for the production of income. The amount
of the depreciation deduction allowed with respect to tangible
property for a taxable year is determined under the modified
accelerated cost recovery system (``MACRS''). Under MACRS,
different types of property generally are assigned applicable
recovery periods and depreciation methods. The recovery periods
applicable to most tangible personal property (generally
tangible property other than residential rental property and
nonresidential real property) range from 3 to 25 years. The
depreciation methods generally applicable to tangible personal
property are the 200-percent and 150-percent declining balance
methods, switching to the straight-line method for the taxable
year in which the depreciation deduction would be maximized.
Section 280F limits the annual depreciation deductions with
respect to passenger automobiles to specified dollar amounts,
indexed for inflation.
Section 167(f)(1) provides that capitalized computer
software costs, other than computer software to which section
197 applies, are recovered ratably over 36 months.
Expensing election
In lieu of depreciation, a taxpayer with a sufficiently
small amount of annual investment may elect to deduct up to
$24,000 (for taxable years beginning in 2001 or 2002) of the
cost of qualifying property placed in service for the taxable
year (sec. 179). This amount is increased to $25,000 for
taxable years beginning in 2003 and thereafter. In general,
qualifying property is defined as depreciable tangible personal
property that is purchased for use in the active conduct of a
trade or business. The $24,000 ($25,000 for taxable years
beginning in 2003 and thereafter) amount is reduced (but not
below zero) by the amount by which the cost of qualifying
property placed in service during the taxable year exceeds
$200,000. In addition, the amount eligible to be expensed for a
taxable year may not exceed the taxable income for a taxable
year that is derived from the active conduct of a trade or
business (determined without regard to this provision). Any
amount that is not allowed as a deduction because of the
taxable income limitation may be carried forward to succeeding
taxable years (subject to similar limitations). No general
business credit under section 38 shall be allowed with respect
to any amount for which a deduction is allowed under section
179.
Reasons for Change
The Committee believes that allowing additional first-year
depreciation will accelerate purchases of equipment, promote
capital investment, modernization, and growth, and will help to
spur an economic recovery.
Explanation of Provision
The provision allows an additional first-year depreciation
deduction equal to 30 percent of the adjusted basis of certain
qualified property that is placed in service before January 1,
2005. The additional depreciation deduction is allowed for both
regular tax and alternative minimum tax purposes for the
taxable year in which the property is placed in service.\1\ The
basis of the property and the depreciation allowances in the
year of purchase and later years is appropriately adjusted to
reflect the additional first-year depreciation deduction. A
taxpayer is allowed to elect out of the additional first-year
depreciation for any class of property for any taxable year.
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\1\ The additional depreciation deduction is subject to the general
rules regarding whether an item is deductible under section 162 or
subject to capitalization under section 263 or section 263A.
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Property qualifies for the additional first-year
depreciation deduction if the property is (1) property to which
MACRS applies with a recovery period of 20 years or less other
than leasehold improvements, (2) water utility property as
defined in section 168(e)(5), or (3) computer software other
than computer software covered by section 197. In order to be
qualified property, the original use \2\ of the property must
commence with the taxpayer on or after September 11, 2001.\3\ A
special rule precludes the additional first-year depreciation
deduction for property that is required to be depreciated under
the alternative depreciation system of MACRS.
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\2\ The term ``original use'' means the first use to which the
property is put, whether or not such use corresponds to the use of such
property by the taxpayer. Except as otherwise provided in Treasury
Regulations, repaired or reconstructed property is not qualified
property.
\3\ A special rule applies in the case of certain leased property.
In the case of any property that is originally placed in service by a
person and that is sold to the taxpayer and leased back to such person
by the taxpayer within three months after the date that the property
was placed in service, the property is treated as originally placed in
service by the taxpayer not earlier than the date that the property is
used under the leaseback.
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In addition, property qualifies only if acquired by the
taxpayer (1) after September 10, 2001 and before September 11,
2004, and no binding written contract for the acquisition is in
effect before September 11, 2001 or (2) pursuant to a binding
written contract which was entered into after September 10,
2001, and before September 11, 2004. Finally, property that is
manufactured, constructed, or produced by the taxpayer for use
by the taxpayer qualifies if the taxpayer begins the
manufacture, construction, or production of the property after
September 10, 2001, and before September 11, 2004 (and all
other requirements are met). Property that is manufactured,
constructed, or produced for the taxpayer by another person
under a contract that is entered into prior to the manufacture,
construction, or production of the property is considered to be
manufactured, constructed, or produced by the taxpayer.
The limitation on the amount of depreciation deductions
allowed with respect to certain passenger automobiles (sec.
280F of the Code) is increased in the first year by $4,600 for
automobiles that qualify (and do not elect out of the increased
first year deduction).
The following examples illustrate the operation of the
provision.
Example 1.--Assume that on March 1, 2002, a calendar year
taxpayer acquires and places in service qualified property that
costs $1 million. Under the provision, the taxpayer is allowed
an additional first-year depreciation deduction of $300,000.
The remaining $700,000 of adjusted basis is to be recovered in
2002 and subsequent years pursuant to the depreciation rules of
present law.
Example 2.--Assume that on March 1, 2002, a calendar year
taxpayer acquires and places in service qualified property that
costs $50,000. In addition, assume that the property qualifies
for the expensing election under section 179. Under the
provision, the taxpayer is first allowed a $35,000 deduction
under section 179.\4\ The taxpayer then is allowed an
additional first-year depreciation deduction of $4,500 based on
$15,000 ($50,000 original cost less the section 179 deduction
of $35,000) of adjusted basis. Finally, the remaining adjusted
basis of $11,500 ($15,000 adjusted basis less $4,500 additional
first-year depreciation) is to be recovered in 2002 and
subsequent years pursuant to the depreciation rules of present
law.
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\4\ A subsequent provision in the bill temporarily increases the
amount deductible under section 179 to $35,000.
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Effective Date
The provision applies to property placed in service after
September 10, 2001.
B. Temporary Increase in Section 179 Expensing (Sec. 102 of the Bill
and Sec. 179 of the Code)
Present Law
Present law provides that, in lieu of depreciation, a
taxpayer with a sufficiently small amount of annual investment
may elect to deduct up to $24,000 (for taxable years beginning
in 2001 or 2002) of the cost of qualifying property placed in
service for the taxable year (sec. 179). This amount is
increased to $25,000 of the cost of qualified property placed
in service for taxable years beginning in 2003 and thereafter.
In general, qualifying property is defined as depreciable
tangible personal property that is purchased for use in the
active conduct of a trade or business. The $24,000 ($25,000 for
taxable years beginning in 2003 and thereafter) amount is
reduced (but not below zero) by the amount by which the cost of
qualifying property placed in service during the taxable year
exceeds $200,000. In addition, the amount eligible to be
expensed for a taxable year may not exceed the taxable income
for a taxable year that is derived from the active conduct of a
trade or business (determined without regard to this
provision). Any amount that is not allowed as a deduction
because of the taxable income limitation may be carried forward
to succeeding taxable years (subject to similar limitations).
No general business credit under section 38 is allowed with
respect to any amount for which a deduction is allowed under
section 179.
Reasons for Change
The Committee believes that increasing the number of small
businesses eligible for immediate expensing and increasing the
amount allowed to be expensed will provide an incentive for
eligible businesses to increase their investment in capital
assets, thus promoting economic growth for small businesses.
Explanation of Provision
The provision provides that the maximum dollar amount that
may be deducted under section 179 is increased to $35,000 for
property placed in service in taxable years beginning after
December 31, 2001, and before January 1, 2004.\5\ The provision
increases the present law $200,000 limit to $325,000. Thus,
under the provision the $35,000 amount is reduced by the amount
by which the cost of qualifying property placed in service
exceeds $325,000. As under present law, no general business
credit under section 38 is allowed with respect to any amount
for which a deduction is allowed under section 179. For taxable
years beginning after December 31, 2003, present law applies
(i.e., up to a $25,000 deduction that is reduced by the amount
of qualifying property placed in service by the taxpayer that
exceeds $200,000).
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\5\ As a result of the increased deduction, the maximum dollar
amount that may be deducted by an enterprise zone business or a renewal
community business is increased to $70,000 for taxable years beginning
after December 31, 2001, and before January 1, 2004. See sec. 1397A and
sec. 1400J.
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Effective Date
The provision is effective for taxable years beginning
after December 31, 2001.
C. Repeal Corporate Alternative Minimum Tax (Sec. 103 of the Bill and
Sec. 55 of the Code)
Present Law
In general
Present law imposes an alternative minimum tax (``AMT'') on
a corporation to the extent the corporation's tentative minimum
tax exceeds its regular tax. This tentative minimum tax is
computed at the rate of 20 percent on the alternative minimum
taxable income (``AMTI'') in excess of a $40,000 phased-out
exemption amount. The exemption amount is phased out by an
amount equal to 25 percent of the amount that the corporation's
AMTI exceeds $150,000.
AMTI is the taxpayer's taxable income increased by certain
preference items and adjusted by determining the tax treatment
of certain items in a manner that negates the deferral of
income resulting from the regular tax treatment of those items.
A corporation with average gross receipts of less than $7.5
million for the prior three taxable years is exempt from the
corporate minimum tax. The $7.5 million threshold is reduced to
$5 million for the corporation's first 3-taxable year period.
Preference items in computing AMTI
The corporate minimum tax preference items are:
(1) The excess of the deduction for percentage depletion
over the adjusted basis of the property at the end of the
taxable year. This preference does not apply to percentage
depletion allowed with respect to oil and gas properties.
(2) The amount by which excess intangible drilling costs
arising in the taxable year exceed 65 percent of the net income
from oil, gas, and geothermal properties. This preference does
not apply to an independent producer to the extent the
preference would not reduce the producer's AMTI by more than 40
percent.
(3) Tax-exempt interest income on private activity bonds
(other than qualified 501(c)(3) bonds) issued after August 7,
1986.
(4) Accelerated depreciation or amortization on certain
property placed in service before January 1, 1987.
Adjustments in computing AMTI
The adjustments that corporations must make in computing
AMTI are:
(1) Depreciation on property placed in service after 1986
and before January 1, 1999, must be computed by using the
generally longer class lives prescribed by the alternative
depreciation system of section 168(g) and either (a) the
straight-line method in the case of property subject to the
straight-line method under the regular tax or (b) the 150-
percent declining balance method in the case of other property.
Depreciation on property placed in service after December 31,
1998, is computed by using the regular tax recovery periods and
the AMT methods described in the previous sentence.
(2) Mining exploration and development costs must be
capitalized and amortized over a 10-year period.
(3) Taxable income from a long-term contract (other than a
home construction contract) must be computed using the
percentage of completion method of accounting.
(4) The amortization deduction allowed for pollution
control facilities placed in service before January 1, 1999
(generally determined using 60-month amortization for a portion
of the cost of the facility under the regular tax), must be
calculated under the alternative depreciation system
(generally, using longer class lives and the straight-line
method). The amortization deduction allowed for pollution
control facilities placed in service after December 31, 1998,
is calculated using the regular tax recovery periods and the
straight-line method.
(5) The special rules applicable to Merchant Marine
construction funds are not applicable.
(6) The special deduction allowable under section 833(b)
for Blue Cross and Blue Shield organizations is not allowed.
(7) The adjusted current earnings adjustment applies, as
described below.
Adjusted current earning (``ACE'') adjustment
The adjusted current earnings adjustment is the amount
equal to 75 percent of the amount by which the adjusted current
earnings of a corporation exceeds its AMTI (determined without
the ACE adjustment and the alternative tax net operating loss
deduction). In determining ACE the following rules apply:
(1) For property placed in service before 1994,
depreciation generally is determined using the straight-line
method and the class life determined under the alternative
depreciation system.
(2) Any amount that is excluded from gross income under the
regular tax but is included for purposes of determining
earnings and profits is included in determining ACE.
(3) The inside build-up of a life insurance contract is
included in ACE (and the related premiums are deductible).
(4) Intangible drilling costs of integrated oil companies
must be capitalized and amortized over a 60-month period.
(5) The regular tax rules of section 173 (allowing
circulation expenses to be amortized) and section 248 (allowing
organizational expenses to be amortized) do not apply.
(6) Inventory must be calculated using the FIFO, rather
than LIFO, method.
(7) The installment sales method generally may not be used.
(8) No loss may be recognized on the exchange of any pool
of debt obligations for another pool of debt obligations having
substantially the same effective interest rates and maturities.
(9) Depletion (other than for oil and gas) must be
calculated using the cost, rather than the percentage, method.
(10) In certain cases, the assets of a corporation that has
undergone an ownership change must be stepped-down to their
fair market values.
Other rules
The combination of the taxpayer's net operating loss
carryover and foreign tax credits cannot reduce the taxpayer's
AMT liability by more than 90 percent of the amount determined
without these items.
The various nonrefundable business credits allowed under
the regular tax generally are not allowed against the AMT.
If a corporation is subject to AMT in any year, the amount
of AMT is allowed as a credit (``AMT credit'') in any
subsequent taxable year to the extent the taxpayer's regular
tax liability exceeds its tentative minimum tax in the
subsequent year.
Reasons for Change
The Committee believes that the corporate AMT inhibits
capital formation and business enterprise, and is
administratively complex. During an economic slowdown,
corporations are more likely to be liable for the AMT because
their income is low relative to their investment in plant and
equipment. Therefore, the bill repeals the corporate AMT.
Explanation of Provision
The provision repeals the corporate AMT.
The provision makes the AMT credit for corporations
refundable.\6\ Thus, a corporation will be able to obtain a
refund of its entire AMT credit for the first taxable year
beginning after December 31, 2000 (to the extent the credit is
in excess of tax liability).
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\6\ Because the AMT credit will be refunded in the corporation's
first taxable year beginning after December 31, 2000, the computation
of the AMT, and the computation of the tentative minimum tax for
purposes of the credits allowed by sections 29 and 30, will not take
into account any carrybacks from taxable years beginning after that
date.
In computing the tentative minimum tax for purposes of computing
the AMT credit for a taxable year beginning before 2001, carrybacks
from taxable years beginning after 2000 likewise will not be taken into
account. To the extent the AMT credit is reduced in a prior taxable
year as a result of this rule, the AMT credit will be allowed or
refunded in a later taxable year. Under the rules relating to the
computation of interest resulting from carrybacks, any resulting
decreases and increases in the AMT credit in differing taxable years
resulting from a post-2000 carryback should offset each other.
In computing the general business credit for a taxable year
beginning before 2001, the tentative minimum tax will be computing
using the same amount of carryback from taxable years beginning after
2000 as used for purposes of computing the regular tax.
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Effective Date
The provision applies to taxable years beginning after
December 31, 2000.
D. Temporary Extension of the Net Operating Loss Carryback Period (Sec.
104 of the Bill and Secs. 172 and 56 of the Code)
Present Law
A net operating loss (``NOL'') is, generally, the amount by
which a taxpayer's allowable deductions exceed the taxpayer's
gross income. An NOL that is carried back may be deducted from
gross income in the carryback year, thereby resulting in a
refund of Federal income tax for the carryback year. Similarly,
an NOL that is carried forward may be deducted from gross
income in a carryforward year, thus reducing the Federal income
tax liability for the carryforward year.
In general, an NOL may be carried back two years and
carried forward 20 years to offset taxable income in such
years. Different rules apply with respect to NOLs arising in
certain circumstances. For example, a three-year carryback
applies with respect to NOLs (1) arising from casualty or theft
losses of individuals, or (2) attributable to Presidentially
declared disasters for taxpayers engaged in a farming business
or a small business. A five-year carryback period applies to
NOLs from a farming loss (regardless of whether the loss was
incurred in a Presidentially declared disaster area). Special
rules also apply to real estate investment trusts (no
carryback), specified liability losses (10-year carryback), and
excess interest losses (no carryback).
The alternative minimum tax rules provide that a taxpayer's
NOL deduction cannot reduce the taxpayer's alternative minimum
taxable income (``AMTI'') by more than 90 percent of the AMTI.
Reasons for Change
The NOL carryback and carryforward rules allow taxpayers to
smooth out swings in business income (and Federal income taxes
thereon) that result from business cycle fluctuations and
unexpected financial losses. The current uncertain economic
conditions have resulted in many taxpayers incurring unexpected
financial losses. A temporary extension of the NOL carryback
period will provide taxpayers in all sectors of the economy who
experience such losses the ability to increase their cash flow
through the refund of income taxes paid in prior years. The
provision will free up funds that can be used for capital
investment or other expenses that will provide stimulus to the
economy.
Explanation of Provision
The provision temporarily extends the general NOL carryback
period to five years (from two years) for NOLs arising in
taxable years ending on or after September 11, 2001, and ending
before September 11, 2004. In addition, the five-year carryback
period applies to NOLs from these years that qualify under
present law for a three-year carryback period (i.e., NOLs
arising from casualty or theft losses of individuals or
attributable to certain Presidentially declared disaster
areas).
The provision also allows an NOL deduction attributable to
these taxable years to offset 100 percent of a taxpayer's AMTI
in a carryback year.\7\
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\7\ Section 172(b)(2) should be appropriately applied in computing
AMTI to take proper account of the order that the NOL carryovers and
carrybacks are used as a result of this provision. See section
56(d)(1)(B)(ii).
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A taxpayer can elect to forgo the five-year carryback
period. The election to forgo the five-year carryback period is
made in the manner prescribed by the Secretary of the Treasury
and must be made by the due date of the return (including
extensions) for the year of the loss. The election is
irrevocable. If a taxpayer elects to forgo the five-year
carryback period, then the losses are subject to the rules that
otherwise would apply under section 172 absent the provision.
Effective Date
The provision is effective for NOLs arising in taxable
years ending on or after September 11, 2001, and before
September 11, 2004.
E. Treatment of Leasehold Improvements (Sec. 105 of the Bill and Sec.
168 of the Code)
present law
Depreciation of leasehold improvements
Depreciation allowances for property used in a trade or
business generally are determined under the modified
Accelerated Cost Recovery System (``MACRS'') of section 168.
Depreciation allowances for improvements made on leased
property are determined under MACRS, even if the MACRS recovery
period assigned to the property is longer than the term of the
lease (sec. 168(i)(8)).\8\ This rule applies regardless whether
the lessor or lessee places the leasehold improvements in
service.\9\ If a leasehold improvement constitutes an addition
or improvement to nonresidential real property already placed
in service, the improvement is depreciated using the straight-
line method over a 39-year recovery period, beginning in the
month the addition or improvement was placed in service (secs.
168(b)(3), (c)(1), (d)(2), and (i)(6)).\10\
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\8\ The Tax Reform Act of 1986 modified the Accelerated Cost
Recovery System (``ACRS'') to institute MACRS. Prior to the adoption of
ACRS by the Economic Recovery Act of 1981, taxpayers were allowed to
depreciate the various components of a building as separate assets with
separate useful lives. The use of component depreciation was repealed
upon the adoption of ACRS. The Tax Reform Act of 1986 also denied the
use of component depreciation under MARCS.
\9\ Former Code sections 168(f)(6) and 178 provided that in certain
circumstances, a lessee could recover the cost of leasehold
improvements made over the remaining term of the lease. These
provisions were repealed by the Tax Reform Act of 1986.
\10\ If the improvement is characterized as tangible personal
property, ACRS or MARCS depreciation is calculated using the shorter
recovery periods and accelerated methods applicable to such property.
The determination of whether certain improvements are characterized as
tangible personal property or as nonresidential real property often
depends on whether or not the improvements constitute a ``structural
component'' of a building (as defined by Treas. Reg. sec. 1.48-
1(e)(1)). See, for example, Metro National Corp., 52 TCM 1440 (1987);
King Radio Corp., 486 F.2d 1091 (10th Cir., 1973); Mallinckrodt, Inc.,
778 F.2d 402 (8th Cir., 1985) (with respect various leasehold
improvements).
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Treatment of dispositions of leasehold improvements
A lessor of leased property that disposes of a leasehold
improvement which was made by the lessor for the lessee of the
property may take the adjusted basis of the improvement into
account for purposes of determining gain or loss if the
improvement is irrevocably disposed of or abandoned by the
lessor at the termination of the lease.\11\ This rule conforms
the treatment of lessors and lessees with respect to leasehold
improvements disposed of at the end of a term of lease. For
purposes of applying this rule, it is expected that a lessor
must be able to separately account for the adjusted basis of
the leasehold improvement that is irrevocably disposed of or
abandoned. This rule does not apply to the extent section 280B
applies to the demolition of a structure, a portion of which
may include leasehold improvements.\12\
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\11\ The conference report describing this provision mistakenly
states that the provision applies to improvements that are irrevocably
disposed of or abandoned by the lessee (rather than the lessor) at the
termination of the lease.
\12\ Undere present law, section 280B denies a deduction for any
loss sustained on the demolition of any structure.
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reasons for change
The Committee believes that costs of certain leasehold
improvements should not be recovered beyond the term of the
lease to the extent that the costs do not provide a future
benefit beyond that term. Although lease terms differ, the
Committee believes that lease terms for commercial real estate
typically are shorter than the present-law 39-year recovery
period. In the interests of simplicity and administrability, a
uniform period for recovery of leasehold improvements is
desirable. The Committee bill therefore shortens the recovery
period for leasehold improvements to 15 years.
explanation of provision
The provision provides that 15-year property for purposes
of the depreciation rules of section 168 includes qualified
leasehold improvement property. The straight line method is
required to be used with respect to qualified leasehold
improvement property.
Qualified leasehold improvement property is any improvement
to an interior portion of a building that is nonresidential
real property, provided certain requirements are met. The
improvement must be made under or pursuant to a lease either by
the lessee (or sublessee) of that portion of the building, or
by the lessor of that portion of the building. That portion of
the building is to be occupied exclusively by the lessee (or
any sublessee). The improvement must be placed in service more
than three years after the date the building was first placed
in service.
Qualified leasehold improvement property does not include
any improvement for which the expenditure is attributable to
the enlargement of the building, any elevator or escalator, any
structural component benefiting a common area, or the internal
structural framework of the building.
A 15-year period is specified as the class life of
qualified leasehold improvement property for purposes of the
alternative depreciation system. Therefore, the general rule
that the class life for nonresidential real and residential
rental property is 40 years does not apply to qualified
leasehold improvement property.
For purposes of the provision, a commitment to enter into a
lease is treated as a lease, and the parties to the commitment
are treated as lessor and lessee. A lease between related
persons is not considered a lease for this purpose.
Under the provision, an improvement made by the person who
was the lessor of the improvement when it was placed in service
generally is treated as qualified leasehold improvement
property only so long as the improvement is held by that
person. Exceptions are provided under this rule in the case of
certain changes in the form of business. Under these
exceptions, property does not cease to be qualified leasehold
improvement property under the provision by reason of (1)
death, (2) a transaction to which section 381 (relating to
carryovers in certain corporate acquisitions) applies, or (3) a
mere change in the form of conducting the trade or business so
long as the property is retained in the business as qualified
leasehold improvement property and the taxpayer retains a
substantial interest in the business.
Qualified leasehold improvement property is not eligible
for the 30 percent expensing provided under a separate
provision of the bill.
effective date
The provision is effective for qualified leasehold
improvement property placed in service on or after September
11, 2001.
TITLE II: INDIVIDUAL PROVISIONS
A. Accelerate the 25-Percent Rate Bracket to 2002 (Sec. 201(a) of the
Bill and Sec. 1 of the Code)
present law
The Economic Growth and Tax Relief Reconciliation Act of
2001 (``EGTRRA'') reduced the prior-law 28-percent individual
regular income tax rate to 25 percent. This rate reduction is
phased-in over six years. The rate is 27 percent for taxable
years beginning in calendar years 2001-2003,\13\ 26 percent for
taxable years beginning in calendar years 2004-2005, and 25
percent for taxable years beginning in calendar years 2006 and
thereafter.
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\13\ A blended rate of 27.5 percent applies in 2001 because of the
July 1, 2001 effective date of EGTRRA.
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reasons for change
The Committee believes that this stimulus package should
contain provisions targeted at both businesses and individuals.
Further, the Committee believes that the acceleration of the
rate reduction of the 28-percent individual regular income tax
rate provided in EGTRRA is an appropriate element of this
fiscal stimulus tax package. Accelerating the decrease in the
28-percent rate bracket will allow taxpayers to keep more of
their own money starting in 2002 and provide additional funds
for needed consumer purchases. In addition, accelerating the
rate reduction will increase the after-tax rate of return for
many small businesses. Thus, the Committee believes that
acceleration of the rate reduction will stimulate the economy
by increasing consumer confidence and spending and spurring
economic activity.
explanation of provisions
The bill provides that the 25-percent rate is effective for
taxable years beginning in calendar years 2002 and thereafter.
effective date
The provision is effective for taxable years beginning
after December 31, 2001.
B. Alternative Minimum Tax Exemption for Individuals (Sec. 201(b) of
the Bill and Sec. 55 of the Code)
present law
The alternative minimum tax is the amount by which the
tentative minimum tax exceeds the regular income tax. An
individual's tentative minimum tax is an amount equal to (1) 26
percent of the first $175,000 ($87,500 in the case of a married
individual filing a separate return) of alternative minimum
taxable income (``AMTI'') in excess of a phased-out exemption
amount and (2) 28 percent of the remaining AMTI. The maximum
tax rates on net capital gain used in computing the tentative
minimum tax are the same as under the regular tax. AMTI is the
individual's taxable income adjusted to take account of
specified preferences and adjustments. The exemption amounts
are: (1) $45,000 ($49,000 in taxable years beginning before
2005) in the case of married individuals filing a joint return
and surviving spouses; (2) $33,750 ($35,750 in taxable years
beginning before 2005) in the case of other unmarried
individuals; (3) $22,500 ($24,500 in taxable years beginning
before 2005) in the case of married individuals filing a
separate return; and (4) $22,500 in the case of an estate or
trust. The exemption amounts are phased out by an amount equal
to 25 percent of the amount by which the individual's AMTI
exceeds (1) $150,000 in the case of married individuals filing
a joint return and surviving spouses, (2) $112,500 in the case
of other unmarried individuals, and (3) $75,000 in the case of
married individuals filing separate returns or an estate or a
trust. These amounts are not indexed for inflation.
reasons for change
The Committee believes that an adjustment to the AMT
exemption amount is necessary to allow the bill's acceleration
in the 25-percent rate bracket to have full effect. Without an
adjustment, the AMT would reduce the benefit of the rate
reduction for many individuals, thereby reducing the
stimulative effect of the rate reduction.
explanation of provision
The provision increases the AMT exemption amount of
individuals for taxable years beginning in 2002, 2003, and
2004.
For 2002 and 2003, the $49,000 exemption amount is
increased by $3,200; the $35,750 exemption amount is increased
by $1,600; and the $24,500 exemption amount is increased by
$1,600.
For 2004, the $49,000 exemption amount is increased by
$1,700; the $35,750 exemption amount is increased by $850; and
the $24,500 exemption amount is increased by $850.
effective date
The provision is effective for taxable years beginning
after December 31, 2001 and before January 1, 2005.
C. Simplify Individual Capital Gains Rates (Sec. 202 of the Bill and
Sec. 1(h) of the Code)
Present Law
In general, gain or loss reflected in the value of an asset
is not recognized for income tax purposes until a taxpayer
disposes of the asset. On the sale or exchange of a capital
asset, any gain generally is included in income. Any net
capital gain of an individual is taxed at maximum rates lower
than the rates applicable to ordinary income. Net capital gain
is the excess of the net long-term capital gain for the taxable
year over the net short-term capital loss for the year. Gain or
loss is treated as long-term if the asset is held for more than
one year.
Capital losses generally are deductible in full against
capital gains. In addition, individual taxpayers may deduct
capital losses against up to $3,000 of ordinary income in each
year. Any remaining unused capital losses may be carried
forward indefinitely to another taxable year.
A capital asset generally means any property except (1)
inventory, stock in trade, or property held primarily for sale
to customers in the ordinary course of the taxpayer's trade or
business, (2) depreciable or real property used in the
taxpayer's trade or business, (3) specified literary or
artistic property, (4) business accounts or notes receivable,
(5) certain U.S. publications, (6) certain commodity derivative
financial instruments, (7) hedging transactions, and (8)
business supplies. In addition, the net gain from the
disposition of certain property used in the taxpayer's trade or
business is treated as long-term capital gain. Gain from the
disposition of depreciable personal property is not treated as
capital gain to the extent of all previous depreciation
allowances. Gain from the disposition of depreciable real
property is generally not treated as capital gain to the extent
of the depreciation allowances in excess of the allowances that
would have been available under the straight-line method of
depreciation.
The maximum rate of tax on the adjusted net capital gain of
an individual is 20 percent. In addition, any adjusted net
capital gain which otherwise would be taxed at a 15-percent
rate is taxed at a 10-percent rate. These rates apply for
purposes of both the regular tax and the alternative minimum
tax.
The ``adjusted net capital gain'' of an individual is the
net capital gain reduced (but not below zero) by the sum of the
28-percent rate gain and the unrecaptured section 1250 gain.
The net capital gain is reduced by the amount of gain that the
individual treats as investment income for purposes of
determining the investment interest limitation under section
163(d).
The term ``28-percent rate gain'' means the amount of net
gain attributable to long-term capital gains and losses from
the sale or exchange of collectibles (as defined in section
408(m) without regard to paragraph (3) thereof), an amount of
gain equal to the amount of gain excluded from gross income
under section 1202 (relating to certain small business
stock),\14\ the net short-term capital loss for the taxable
year, and any long-term capital loss carryover to the taxable
year.
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\14\ This results in a maximum effective regular tax rate on
qualified gain from small business stock of 14 percent.
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``Unrecaptured section 1250 gain'' means any long-term
capital gain from the sale or exchange of section 1250 property
(i.e., depreciable real estate) held more than one year to the
extent of the gain that would have been treated as ordinary
income if section 1250 applied to all depreciation, reduced by
the net loss (if any) attributable to the items taken into
account in computing 28-percent rate gain. The amount of
unrecaptured section 1250 gain (before the reduction for the
net loss) attributable to the disposition of property to which
section 1231 applies shall not exceed the net section 1231 gain
for the year.
The unrecaptured section 1250 gain is taxed at a maximum
rate of 25 percent, and the 28-percent rate gain is taxed at a
maximum rate of 28 percent. Any amount of unrecaptured section
1250 gain or 28-percent rate gain otherwise taxed at a 15-
percent rate is taxed at the 15-percent rate.
Any gain from the sale or exchange of property held more
than five years which would otherwise be taxed at the 10-
percent rate is taxed at an 8-percent rate. Any gain from the
sale or exchange of property held more than five years and the
holding period for which begins after December 31, 2000, which
would otherwise be taxed at a 20-percent rate is taxed at an
18-percent rate.
A taxpayer holding a capital asset or property used in the
trade or business on January 1, 2001, may elect to treat the
asset as having been sold on that date for an amount equal to
its fair market value, and having been reacquired for an amount
equal to such value.
Reasons for Change
The bill simplifies the capital gain rates by eliminating
the 5-year holding period so that the 8- and 18-percent rates
are effective for assets held more than one year, and the 10-
and 20-percent rates will no longer apply.
Explanation of Provision
The provision reduces the 10- and 20-percent rates on the
adjusted net capital gain to 8 and 18 percent, respectively.
These lower rates apply to both the regular tax and the
alternative minimum tax.
The provision repeals the special rules for certain gain
from property held more than 5 years, and repeals the election
to recognize gain on property held on January 1, 2001. The
lower rates apply to assets held more than one year.
Effective Date
The provision applies to taxable years of individual
taxpayers ending on or after October 12, 2001.
For taxable years of individual taxpayers that include
October 12, 2001, the lower rates apply to amounts properly
taken into account for the portion of the year on or after that
date. This generally has the effect of applying the lower rates
to capital assets sold or exchanged (and installment payments
received) on or after October 12, 2001. In the case of gain
taken into account by a pass- through entity, the date taken
into account by the entity is the appropriate date for applying
this rule (without regard to the taxable year of the entity).
D. Increase Deduction of Capital Losses of Individuals Against Ordinary
Income (Sec. 203 of the Bill and Sec. 1211 of the Code)
Present Law
Capital losses of individuals are deductible in full
against capital gains. In addition, individual taxpayers may
deduct capital losses against up to $3,000 ($1,500 in the case
of married individuals filing a separate return) of ordinary
income in each taxable year. Any remaining unused capital
losses may be carried forward indefinitely to future taxable
years.
Reasons for Change
The Committee believes that the limitation on the
deductibility of capital losses should be raised.
Explanation of Provision
The amount of capital losses of individuals that may offset
ordinary income is increased from $3,000 to $4,000 in taxable
years beginning in 2001 and to $5,000 in taxable years
beginning in 2002. For married individuals filing a separate
return, the increases are from $1,500 to $2,000 and $2,500
respectively.
Effective Date
The provision applies to taxable years beginning in 2001
and 2002.
E. Expand Exception From Early Withdrawal Tax for Health Insurance
Expenses of Unemployed Individuals (Sec. 204 of the Bill and Sec. 72(t)
of the Code)
Present Law
A distribution from an individual retirement account
(``IRA'') or an employer-sponsored retirement plan generally is
includible in gross income in the year it is paid under the
rules relating to taxation of annuities, unless the amount
distributed represents the individual's investment in the
contract (i.e., basis). Special rules apply in the case of Roth
IRAs, distributions that are rolled over into another tax-
favored retirement plan, distributions of employer securities,
and certain other situations.
Taxable distributions made from an IRA or from certain
employer-sponsored retirement plans before age 59\1/2\, death,
or disability generally are subject to an additional 10-percent
income tax. Besides IRAs, the early withdrawal tax applies to
distributions from a qualified retirement plan (including a
section 401(k) plan), a qualified annuity plan, or a tax-
deferred annuity plan (``section 403(b) plan''). However,
exceptions apply to the early withdrawal tax, depending in part
on the specific type of arrangement from which the distribution
is made and the purpose for which the distribution is used.
The 10-percent early withdrawal tax does not apply to IRA
distributions to an unemployed individual after separation from
employment to the extent the distributions do not exceed the
amount paid during the year for health insurance for the
individual and the individual's spouse and dependents. This
exception applies if the individual (including a self-employed
individual) has received unemployment compensation under
Federal or State law for at least 12 consecutive weeks and if
the distribution is made in the year such unemployment
compensation is received or the following year. If a self-
employed individual is not eligible for unemployment
compensation under applicable law, then, to the extent provided
in regulations, a self-employed individual is treated as having
received unemployment compensation for at least 12 weeks if the
individual would have received unemployment compensation but
for the fact that the individual was self-employed.
The exception to the early withdrawal tax ceases to apply
if the individual has been reemployed for at least 60 days.
Reasons for Change
The Committee understands that individuals who lose their
jobs as a result of the current economic downturn may face
unexpected health insurance costs. The Committee believes that
it is appropriate to provide a temporary exception to the early
withdrawal tax for individuals who withdraw retirement funds in
order to pay for health insurance.
Explanation of Provision
The provision temporarily expands the present-law exception
to the early withdrawal tax for IRA distributions used for
health insurance for unemployed individuals. Under the
provision, the exception applies to distributions made after
separation from employment to individuals who receive
unemployment compensation for four consecutive weeks during the
period from September 11, 2001 to December 31, 2002. As under
present law, the exception applies to the extent distributions
do not exceed the amount paid during the year for health
insurance for the individual and the individual's spouse and
dependents. As under present law, the exception can apply to
distributions made in the year following the year in which the
unemployment compensation is received, but does not apply to
distributions made after the individual has been reemployed for
at least 60 days.
Under the provision, the exception applies also to
distributions from a qualified retirement plan (including a
section 401(k) plan), a qualified annuity plan, or a section
403(b) plan, provided the requirements for the exception are
otherwise met.
Effective Date
The provision is effective for distributions made after the
date of enactment.
TITLE III: EXTENSIONS OF EXPIRING PROVISIONS
A. Two-Year Extension of Provisions Expiring in 2001
1. Extend Alternative Minimum Tax Relief for Individuals (sec. 301 of
the bill and sec. 26 of the Code)
present law
Present law provides for certain nonrefundable personal tax
credits (i.e., the dependent care credit, the credit for the
elderly and disabled, the adoption credit, the child tax
credit\15\, the credit for interest on certain home mortgages,
the HOPE Scholarship and Lifetime Learning credits, the IRA
credit, and the D.C. homebuyer's credit). For taxable years
beginning after 2001, these credits (other than the adoption
credit, child credit and IRA credit) are allowed only to the
extent that the individual's regular income tax liability
exceeds the individual's tentative minimum tax, determined
without regard to the minimum tax foreign tax credit. The
adoption credit, child credit, and IRA credit are allowed to
the full extent of the individual's regular tax and alternative
minimum tax.
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\15\ A portion of the child credit may be refundable.
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For taxable years beginning in 2001, all the nonrefundable
personal credits are allowed to the extent of the full amount
of the individual's regular tax and alternative minimum tax.
The alternative minimum tax is the amount by which the
tentative minimum tax exceeds the regular income tax. An
individual's tentative minimum tax is an amount equal to (1) 26
percent of the first $175,000 ($87,500 in the case of a married
individual filing a separate return) of alternative minimum
taxable income (``AMTI'') in excess of a phased-out exemption
amount and (2) 28 percent of the remaining AMTI. The maximum
tax rates on net capital gain used in computing the tentative
minimum tax are the same as under the regular tax. AMTI is the
individual's taxable income adjusted to take account of
specified preferences and adjustments. The exemption amounts
are: (1) $45,000 ($49,000 in taxable years beginning before
2005) in the case of married individuals filing a joint return
and surviving spouses; (2) $33,750 ($35,750 in taxable years
beginning before 2005) in the case of other unmarried
individuals; (3) $22,500 ($24,500 in taxable years beginning
before 2005) in the case of married individuals filing a
separate return; and (4) $22,500 in the case of an estate or
trust.\16\ The exemption amounts are phased out by an amount
equal to 25 percent of the amount by which the individual's
AMTI exceeds (1) $150,000 in the case of married individuals
filing a joint return and surviving spouses, (2) $112,500 in
the case of other unmarried individuals, and (3) $75,000 in the
case of married individuals filing separate returns or an
estate or a trust. These amounts are not indexed for inflation.
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\16\ Section 202(b) of the bill increases certain of the exemption
amounts.
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Reasons for Change
The Committee believes that the nonrefundable personal
credits should be useable without limitation by reason of the
alternative minimum tax. This will result in significant
simplification.
Explanation of Provision
The provision allows an individual to offset the entire
regular tax liability and alternative minimum tax liability by
the personal nonrefundable credits in 2002 and 2003.
effective Date
The provision is effective for taxable years beginning in
2002 and 2003.
2. Extend Credit for Purchase of Electric Vehicles (sec. 302 of the
bill and secs. 30 and 280F of the Code)
A 10-percent tax credit is provided for the cost of a
qualified electric vehicle, up to a maximum credit of $4,000
(sec. 30). A qualified electric vehicle is a motor vehicle that
is powered primarily by an electric motor drawing current from
rechargeable batteries, fuel cells, or other portable sources
of electrical current, the original use of which commences with
the taxpayer, and that is acquired for the use by the taxpayer
and not for resale. The full amount of the credit is available
for purchases prior to 2002. The credit phases down in the
years 2002 through 2004, and is unavailable for purchases after
December 31, 2004.\17\
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\17\ The amount the taxpayer may claim as a depreciation deduction
for any passenger automobile is limited (sec. 280F). In the case of a
passenger vehicle designed to be propelled primarily by electricity and
built by an original equipment manufactgurer, the otherwise applicable
limitation amounts are tripled. These exceptions from sec. 280F apply
to vehicles placed in service prior to January 1, 2005.
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reasons for Change
The Committee believes that continued economic incentive is
warranted to increase the presence of electric vehicles on the
nation's roadways.
explanation of provision
The bill defers the phase down of the credit by two years.
Taxpayers may claim the full amount of the credit for qualified
purchases made in 2002 and 2003. Under the bill, the phase down
of the credit value commences in 2004 and the credit is
unavailable for purchases after December 31, 2006. A conforming
modification is made to section 280F.
effective date
The provision is effective on the date of enactment.
3. Extend Section 45 Credit for Production of Electricity from Wind,
Closed Loop Biomass, and Poultry Litter (sec. 303 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, qualified
``closed-loop'' biomass, or qualified poultry waste facilities
(sec. 45).
The credit applies to electricity produced by a wind energy
facility placed in service after December 31, 1993, and before
January 1, 2002, to electricity produced by a closed-loop
biomass facility placed in service after December 31, 1992, and
before January 1, 2002, and to a poultry waste facility placed
in service after December 31, 1999, and before January 1, 2002.
The credit is allowable for production during the 10-year
period after a facility is originally placed in service. In
order to claim the credit, a taxpayer must own the facility and
sell the electricity produced by the facility to an unrelated
party. In the case of a poultry waste facility, the taxpayer
may claim the credit as a lessee/operator of a facility owned
by a governmental unit.
Closed-loop biomass is plant matter, where the plants are
grown for the sole purpose of being used to generate
electricity. It does not include waste materials (including,
but not limited to, scrap wood, manure, and municipal or
agricultural waste). The credit also is not available to
taxpayers who use standing timber to produce electricity.
Poultry waste means poultry manure and litter, including wood
shavings, straw, rice hulls, and other bedding material for the
disposition of manure.
The credit for electricity produced from wind, closed-loop
biomass, or poultry waste is a component of the general
business credit (sec. 38(b)(8)). The 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. For credits arising in taxable years beginning
after December 31, 1997, an unused general business credit
generally may be carried back one year and carried forward 20
years (sec. 39). To coordinate the carryback with the period of
application for this credit, the credit for electricity
produced from closed-loop biomass facilities may not be carried
back to a tax year ending before 1993 and the credit for
electricity produced from wind energy may not be carried back
to a tax year ending before 1994 (sec. 39).
reasons for change
The Committee believes that continued economic incentive is
warranted to increase the presence of these more
environmentally friendly generation sources in the nation's
electricity grid.
explanation of provision
The bill extends the placed in service date for qualified
facilities by two years to include those facilities placed in
service prior to January 1, 2004.
effective date
The provision is effective on the date of enactment.
4. Extend the Work Opportunity Tax Credit (sec. 304 of the bill and
sec. 51 of the Code)
present law
In general
The work opportunity tax credit (``WOTC'') is available on
an elective basis for employers hiring individuals from one or
more of eight targeted groups. The credit equals 40 percent (25
percent for employment of less than 400 hours) of qualified
wages. Generally, qualified wages are wages attributable to
service rendered by a member of a targeted group during the
one-year period beginning with the day the individual began
work for the employer.
The maximum credit per employee is $2,400 (40 percent of
the first $6,000 of qualified first-year wages). With respect
to qualified summer youth employees, the maximum credit is
$1,200 (40 percent of the first $3,000 of qualified first-year
wages).
For purposes of the credit, wages are generally defined as
under the Federal Unemployment Tax Act, without regard to the
dollar cap.
Targeted groups eligible for the credit
The eight targeted groups are: (1) families eligible to
receive benefits under the Temporary Assistance for Needy
Families (``TANF'') Program; (2) high-risk youth; (3) qualified
ex-felons; (4) vocational rehabilitation referrals; (5)
qualified summer youth employees; (6) qualified veterans; (7)
families receiving food stamps; and (8) persons receiving
certain Supplemental Security Income (``SSI'') benefits.
The employer's deduction for wages is reduced by the amount
of the credit.
Expiration date
The credit is effective for wages paid or incurred to a
qualified individual who begins work for an employer before
January 1, 2002.
reasons for change
The Committee believes that a temporary extension of this
credit will allow the Congress and the Treasury and Labor
Departments to continue to monitor the effectiveness of the
credit.
explanation of provision
The bill extends the work opportunity tax credit for two
years (through December 31, 2003).
effective date
The provision is effective for wages paid or incurred to a
qualified individual who begins work for an employer on or
after January 1, 2002, and before January 1, 2004.
5. Extend the Welfare-To-Work Tax Credit (sec. 305 of the bill and sec.
51A of the Code)
present law
In general
The welfare-to-work tax credit is available on an elective
basis for employers for the first $20,000 of eligible wages
paid to qualified long-term family assistance recipients during
the first two years of employment. The credit is 35 percent of
the first $10,000 of eligible wages in the first year of
employment and 50 percent of the first $10,000 of eligible
wages in the second year of employment. The maximum credit is
$8,500 per qualified employee.
Qualified long-term family assistance recipients are: (1)
members of a family that has received family assistance for at
least 18 consecutive months ending on the hiring date; (2)
members of a family that has received family assistance for a
total of at least 18 months (whether or not consecutive) after
the date of enactment of this credit if they are hired within 2
years after the date that the 18-month total is reached; and
(3) members of a family that is no longer eligible for family
assistance because of either Federal or State time limits, if
they are hired within two years after the Federal or State time
limits made the family ineligible for family assistance. Family
assistance means benefits under the Temporary Assistance to
Needy Families (``TANF'') program.
For purposes of the credit, wages are generally defined
under the Federal Unemployment Tax Act, without regard to the
dollar amount. In addition, wages include the following: (1)
educational assistance excludable under a section 127 program;
(2) the value of excludable health plan coverage but not more
than the applicable premium defined under section 4980B(f)(4);
and (3) dependent care assistance excludable under section 129.
The employer's deduction for wages is reduced by the amount
of the credit.
Expiration date
The welfare to work credit is effective for wages paid or
incurred to a qualified individual who begins work for an
employer before January 1, 2002.
reasons for change
The Committee believes that the welfare-to-work credit
should be temporarily extended to provide the Congress and
Treasury and Labor Departments a better opportunity to assess
the operation and effectiveness of the credit in meeting its
goals. These goals are: (1) to provide an incentive to hire
long-term welfare recipients; (2) to promote the transition
from welfare to work by increasing access to employment for
these individuals; and (3) to encourage employers to provide
these individuals with training, health coverage, dependent
care and ultimately better job attachment.
explanation of provision
The bill extends the welfare to work credit for two years
(through December 31, 2003).
effective date
The provision is effective for wages paid or incurred to a
qualified individual who begins work for an employer on or
after January 1, 2002, and before January 1, 2004.
6. Extend Deduction for Qualified Clean-Fuel Vehicle Property and
Qualified Clean-Fuel Vehicle Refueling Property (sec. 306 of
the bill and secs. 179A and 280F of the Code)
Certain costs of qualified clean-fuel vehicle property and
clean-fuel vehicle refueling property may be expensed and
deducted when such property is placed in service (sec.
179A).\18\ Qualified clean-fuel vehicle property includes motor
vehicles that use certain clean-burning fuels (natural gas,
liquefied natural gas, liquefied petroleum gas, hydrogen,
electricity and any other fuel at least 85 percent of which is
methanol, ethanol, any other alcohol or ether). The maximum
amount of the deduction is $50,000 for a truck or van with a
gross vehicle weight over 26,000 pounds or a bus with seating
capacities of at least 20 adults; $5,000 in the case of a truck
or van with a gross vehicle weight between 10,000 and 26,000
pounds; and $2,000 in the case of any other motor vehicle.
Qualified electric vehicles do not qualify for the clean-fuel
vehicle deduction.
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\18\ The amount the taxpayer may claim as a depreciation deduction
for any passenger automobile is limited (sec. 280F). In the case of a
qualified clean-burning fuel vehicle, the limitation of sec. 280F
applies only to that portion of the vehicle's cost not represented by
the installed qualified clean-burning fuel property. The taxpayer may
claim an amount otherwise allowable as a depreciation deduction on the
installed qualified clean-burning fuel property, without regard to the
limitation. These exceptions from sec. 280F apply to vehicles placed in
service prior to January 1, 2005.
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Clean-fuel vehicle refueling property comprises property
for the storage or dispensing of a clean-burning fuel, if the
storage or dispensing is the point at which the fuel is
delivered into the fuel tank of a motor vehicle. Clean-fuel
vehicle refueling property also includes property for the
recharging of electric vehicles, but only if the property is
located at a point where the electric vehicle is recharged. Up
to $100,000 of such property at each location owned by the
taxpayer may be expensed with respect to that location.
The deduction for clean-fuel vehicle property phases down
in the years 2002 through 2004, and is unavailable for
purchases after December 31, 2004. The deduction for clean-fuel
vehicle refueling property is unavailable for property placed
in service after December 31, 2004.
reasons for change
The Committee believes that continued economic incentive is
warranted to increase the presence of alternative fuel vehicles
in the market.
explanation of provision
The bill defers the phase down of the deduction for clean-
fuel vehicle property by two years. Taxpayers may claim the
full amount of the deduction for qualified vehicles placed in
service in 2002 and 2003. Under the bill, the phase down of the
deduction for clean-fuel vehicles commences in 2004 and the
deduction is unavailable for purchases after December 31, 2006.
A conforming modification is made to section 280F.
The provision extends the placed in service date for clean-
fuel vehicle refueling property by one year. The deduction for
clean-fuel vehicle refueling property is available for property
placed in service prior to January 1, 2007.
Effective date
The provision is effective on the date of enactment.
7. Taxable Income Limit on Percentage Depletion for Marginal Production
(sec. 307 of the bill and sec. 613A of the Code)
Present Law
In general
Depletion, like depreciation, is a form of capital cost
recovery. In both cases, the taxpayer is allowed a deduction in
recognition of the fact that an asset--in the case of depletion
for oil or gas interests, the mineral reserve itself--is being
expended in order to produce income. Certain costs incurred
prior to drilling an oil or gas property are recovered through
the depletion deduction. These include costs of acquiring the
lease or other interest in the property and geological and
geophysical costs (in advance of actual drilling). Depletion is
available to any person having an economic interest in a
producing property.
Two methods of depletion are allowable under the Code: (1)
the cost depletion method, and (2) the percentage depletion
method (secs. 611-613). Under the cost depletion method, the
taxpayer deducts that portion of the adjusted basis of the
depletable property which is equal to the ratio of units sold
from that property during the taxable year to the number of
units remaining as of the end of taxable year plus the number
of units sold during the taxable year. Thus, the amount
recovered under cost depletion may never exceed the taxpayer's
basis in the property.
Under the percentage depletion method, generally, 15
percent of the taxpayer's gross income from an oil- or gas-
producing property is allowed as a deduction in each taxable
year (sec. 613A(c)). The amount deducted generally may not
exceed 100 percent of the net income from that property in any
year (the ``net-income limitation'') (sec. 613(a)). The
Taxpayer Relief Act of 1997 suspended the 100- percent-of-net-
income limitation for production from marginal wells for
taxable years beginning after December 31, 1997, and before
January 1, 2000. The limitation subsequently was extended to
include taxable years beginning before January 1, 2002.
Additionally, the percentage depletion deduction for all oil
and gas properties may not exceed 65 percent of the taxpayer's
overall taxable income (determined before such deduction and
adjusted for certain loss carrybacks and trust distributions)
(sec. 613A(d)(1)).\19\ Because percentage depletion, unlike
cost depletion, is computed without regard to the taxpayer's
basis in the depletable property, cumulative depletion
deductions may be greater than the amount expended by the
taxpayer to acquire or develop the property.
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\19\ Amounts disallowed as a result of this rule may be carried
forward and deducted in subsequent taxable years, subject to the 65-
percent taxable income limitation for those years.
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A taxpayer is required to determine the depletion deduction
for each oil or gas property under both the percentage
depletion method (if the taxpayer is entitled to use this
method) and the cost depletion method. If the cost depletion
deduction is larger, the taxpayer must utilize that method for
the taxable year in question (sec. 613(a)).
Limitation of oil and gas percentage depletion to independent producers
and royalty owners
Generally, only independent producers and royalty owners
(as contrasted to integrated oil companies) are allowed to
claim percentage depletion. Percentage depletion for eligible
taxpayers is allowed only with respect to up to 1,000 barrels
of average daily production of domestic crude oil or an
equivalent amount of domestic natural gas (sec. 613A(c)). For
producers of both oil and natural gas, this limitation applies
on a combined basis.
In addition to the independent producer and royalty owner
exception, certain sales of natural gas under a fixed contract
in effect on February 1, 1975, and certain natural gas from
geopressured brine, are eligible for percentage depletion, at
rates of 22 percent and 10 percent, respectively. These
exceptions apply without regard to the 1,000-barrel-per-day
limitation and regardless of whether the producer is an
independent producer or an integrated oil company.
reasons for change
The Committee notes that oil is, and will continue to be,
vital to the American economy. The Committee believes that
extension of the current waiver of the 100-percent-of-income-
limit will contribute to investment in domestic oil and gas
production.
explanation of provision
The provision extends the period when the 100-percent net-
income limit is suspended to include taxable years beginning
after December 31, 2001 and before January 1, 2004.
effective date
The provision is effective on the date of enactment.
8. Extension of Authority to Issue Qualified Zone Academy Bonds (sec.
308 of the bill and sec. 1397E of the Code)
Present Law
Tax-exempt bonds
Interest on State and local governmental bonds generally is
excluded from gross income for Federal income tax purposes if
the proceeds of the bonds are used to finance direct activities
of these governmental units or if the bonds are repaid with
revenues of the governmental units. Activities that can be
financed with these tax-exempt bonds include the financing of
public schools (sec. 103).
Qualified zone academy bonds
As an alternative to traditional tax-exempt bonds, States
and local governments are given the authority to issue
``qualified zone academy bonds'' (``QZABs'') (sec. 1397E). A
total of $400 million of qualified zone academy bonds may be
issued annually in calendar years 1998 through 2001. The $400
million aggregate bond cap is allocated each year to the States
according to their respective populations of individuals below
the poverty line. Each State, in turn, allocates the credit
authority to qualified zone academies within such State.
Financial institutions that hold qualified zone academy
bonds are entitled to a nonrefundable tax credit in an amount
equal to a credit rate multiplied by the face amount of the
bond. A taxpayer holding a qualified zone academy bond on the
credit allowance date is entitled to a credit. The credit is
includable in gross income (as if it were a taxable interest
payment on the bond), and may be claimed against regular income
tax and AMT liability.
The Treasury Department sets the credit rate at a rate
estimated to allow issuance of qualified zone academy bonds
without discount and without interest cost to the issuer. The
maximum term of the bond is determined by the Treasury
Department, so that the present value of the obligation to
repay the bond is 50 percent of the face value of the bond.
``Qualified zone academy bonds'' are defined as any bond
issued by a State or local government, provided that (1) at
least 95 percent of the proceeds are used for the purpose of
renovating, providing equipment to, developing course materials
for use at, or training teachers and other school personnel in
a ``qualified zone academy'' and (2) private entities have
promised to contribute to the qualified zone academy certain
equipment, technical assistance or training, employee services,
or other property or services with a value equal to at least 10
percent of the bond proceeds.
A school is a ``qualified zone academy'' if (1) the school
is a public school that provides education and training below
the college level, (2) the school operates a special academic
program in cooperation with businesses to enhance the academic
curriculum and increase graduation and employment rates, and
(3) either (a) the school is located in an empowerment zones
enterprise community designated under the Code, or (b) it is
reasonably expected that at least 35 percent of the students at
the school will be eligible for free or reduced-cost lunches
under the school lunch program established under the National
School Lunch Act.
Reasons for Change
The Committee believes that extension of authority to issue
qualified zone academy bonds is appropriate in light of the
educational needs that exist today.
Explanation of Provision
The provision authorizes issuance of up to $400 million of
qualified zone academy bonds annually in calendar years 2002
and 2003.
Effective Date
The provision is effective on the date of enactment.
9. Extension of Increased Coverover Payments to Puerto Rico and the
Virgin Islands (sec. 309 of the bill and sec. 7652 of the Code)
Present Law
A $13.50 per proof gallon \20\ excise tax is imposed on
distilled spirits produced in, or imported or brought into, the
United States. The excise tax does not apply to distilled
spirits that are exported from the United States or to
distilled spirits that are consumed in U.S. possessions (e.g.,
Puerto Rico and the Virgin Islands).
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\20\ A proof gallon is a liquid gallon consisting of 50 percent
alcohol.
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The Code provides for coverover (payment) of $13.25 per
proof gallon of the excise tax imposed on rum imported (or
brought) into the United States (without regard to the country
of origin) to Puerto Rico and the Virgin Islands during the
period July 1, 1999 through December 31, 2001. Effective on
January 1, 2002, the coverover rate is scheduled to return to
its permanent level of $10.50 per proof gallon.
Amounts covered over to Puerto Rico and the Virgin Islands
are deposited into the treasuries of the two possessions for
use as those possessions determine.
Reasons for Change
The Committee believes that extension of the increased
coverover rate to Puerto Rico and the Virgin Islands will
contribute to economic stability in those possessions.
Explanation of Provision
The provision extends the $13.25-per-proof-gallon coverover
rate for two additional years, through December 31, 2003.
The Committee is aware that Puerto Rico currently allocates
a portion of the coverover payments it receives to the Puerto
Rico Conservation Trust. The Committee believes it is
appropriate that this allocation continue through the period
when the $13.25-per-proof-gallon rate is extended.
Effective Date
The provision is effective on the date of enactment.
10. Tax on Failure to Comply with Mental Health Parity Requirements
(sec. 310 of the bill and sec. 9812 of the Code)
Prior Law
The Mental Health Parity Act of 1996 amended ERISA and the
Public Health Service Act to provide that group health plans
that provide both medical and surgical benefits and mental
health benefits cannot impose aggregate lifetime or annual
dollar limits on mental health benefits that are not imposed on
substantially all medical and surgical benefits. The provisions
of the Mental Health Parity Act are effective with respect to
plan years beginning on or after January 1, 1998, but do not
apply to benefits for services furnished on or after September
30, 2001.
The Taxpayer Relief Act of 1997 added to the Internal
Revenue Code the requirements imposed under the Mental Health
Parity Act, and imposed an excise tax on group health plans
that fail to meet the requirements. The excise tax is equal to
$100 per day during the period of noncompliance and is imposed
on the employer sponsoring the plan if the plan fails to meet
the requirements. The maximum tax that can be imposed during a
taxable year cannot exceed the lesser of 10 percent of the
employer's group health plan expenses for the prior year or
$500,000. No tax is imposed if the Secretary determines that
the employer did not know, and exercising reasonable diligence
would not have known, that the failure existed.
The excise tax is applicable with respect to plan years
beginning on or after January 1, 1998, and expired with respect
to benefits for services provided on or after September 30,
2001.
Reasons for Change
The Committee believes it appropriate to provide an
extension of the mental health parity provisions.
Explanation of Provision
The excise tax on failures to comply with mental health
parity requirements is extended for two years.
Effective Date
The provision is effective with respect to plan years
beginning on or after January 1, 2002, and would not apply to
benefits for services furnished on or after January 1, 2004.
11. Delay in Effective Date of Requirement for Approved Diesel or
Kerosene Terminal (sec. 311 of the bill and sec. 4101 of the
Code)
Present Law
Excise taxes are imposed on highway motor fuels, including
gasoline, diesel fuel, and kerosene, to finance the Highway
Trust Fund programs. Subject to limited exceptions, these taxes
are imposed on all such fuels when they are removed from
registered pipeline or barge terminal facilities, with any tax-
exemptions being accomplished by means of refunds to consumers
of the fuel.\21\ One such exception allows removal of diesel
fuel or kerosene without payment of tax if the fuel is destined
for a nontaxable use (e.g., use as heating oil) and is
indelibly dyed.
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\21\ Tax is imposed before that point if the motor fuel is
transferred (other than in bulk) from a refinery or if the fuel is sold
to an unregistered party while still held in the refinery or bulk
distribution system (e.g., in a pipeline or terminal facility).
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Terminal facilities are not permitted to receive and store
non-tax-paid motor fuels unless they are registered with the
Internal Revenue Service. Under present law, a prerequisite to
registration is that if the terminal offers for sale diesel
fuel, it must offer both dyed and undyed diesel fuel.
Similarly, if the terminal offers for sale kerosene, it must
offer both dyed and undyed kerosene. This ``dyed-fuel mandate''
was enacted in 1997, to be effective on July 1, 1998.
Subsequently, the effective date was delayed until July 1,
2000, and later until January 1, 2002.
Reasons for Change
When the rules governing taxation of kerosene used as a
highway motor fuel were enacted in 1997, the Congress was
concerned that dyed kerosene and diesel fuel (destined for
nontaxable uses) might be unavailable in markets where those
fuels were commonly used (e.g., as heating oil). To ensure
availability of untaxed, dyed fuels for those uses, the
Congress included a requirement that terminals offer both dyed
and undyed kerosene and diesel fuel (if they offered the fuels
for sale at all) as a condition of receiving untaxed fuels.
Since that time, markets have provided dyed kerosene and diesel
fuel for nontaxable uses where there is a demand for them. The
Committee believes a further delay in this registration
requirement is appropriate to allow a more complete evaluation
of whether the requirement should be repealed or implemented.
Explanation of Provision
The effective date of the diesel fuel and kerosene dyeing
mandate is delayed for two additional years, until January 1,
2004.
Effective Date
The provision is effective on the date of enactment.
B. One-Year Extension of Provision Expiring in 2002
1. Extension of Archer Medical Savings Accounts (``MSAs'') (sec. 321 of
the bill and sec. 220 of the Code)
Present Law
In general
Within limits, contributions to an Archer medical savings
account (``MSA'') are deductible in determining adjusted gross
income if made by an eligible individual and are excludable
from gross income and wages for employment tax purposes if made
by the employer of an eligible individual. Earnings on amounts
in an Archer MSA are not currently taxable. Distributions from
an Archer MSA for medical expenses are not taxable.
Distributions not used for medical expenses are taxable. In
addition, distributions not used for medical expenses are
subject to an additional 15-percent tax unless the distribution
is made after age 65, death, or disability.
Eligible individuals
Archer MSAs are available to employees covered under an
employer-sponsored high deductible plan of a small employer and
self-employed individuals covered under a high deductible
health plan.\22\ An employer is a small employer if it
employed, on average, no more than 50 employees on business
days during either the preceding or the second preceding year.
An individual is not eligible for an Archer MSA if they are
covered under any other health plan in addition to the high
deductible plan.
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\22\ Self-employed individuals include more than 2-percent
shareholders of S corporations who are treated as partners for purposes
of fringe benefit rules pursuant to section 1372.
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Tax treatment of and limits on contributions
Individual contributions to an Archer MSA are deductible
(within limits) in determining adjusted gross income (i.e.,
``above the line''). In addition, employer contributions are
excludable from gross income and wages for employment tax
purposes (within the same limits), except that this exclusion
does not apply to contributions made through a cafeteria plan.
In the case of an employee, contributions can be made to an
Archer MSA either by the individual or by the individual's
employer.
The maximum annual contribution that can be made to an
Archer MSA for a year is 65 percent of the deductible under the
high deductible plan in the case of individual coverage and 75
percent of the deductible in the case of family coverage.
Definition of high deductible plan
A high deductible plan is a health plan with an annual
deductible of at least $1,600 and no more than $2,400 in the
case of individual coverage and at least $3,200 and no more
than $4,800 in the case of family coverage. In addition, the
maximum out-of-pocket expenses with respect to allowed costs
(including the deductible) must be no more than $3,200 in the
case of individual coverage and no more than $5,850 in the case
of family coverage.\23\ A plan does not fail to qualify as a
high deductible plan merely because it does not have a
deductible for preventive care as required by State law. A plan
does not qualify as a high deductible health plan if
substantially all of the coverage under the plan is for
permitted coverage (as described above). In the case of a self-
insured plan, the plan must in fact be insurance (e.g., there
must be appropriate risk shifting) and not merely a
reimbursement arrangement.
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\23\ These dollar amounts are for 2001. These amounts are indexed
for inflation in $50 increments.
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Taxation of distributions
Distributions from an Archer MSA for the medical expenses
of the individual and his or her spouse or dependents generally
are excludable from income.\24\ However, in any year for which
a contribution is made to an Archer MSA, withdrawals from an
Archer MSA maintained by that individual generally are
excludable from income only if the individual for whom the
expenses were incurred was covered under a high deductible plan
for the month in which the expenses were incurred.\25\ For this
purpose, medical expenses are defined as under the itemized
deduction for medical expenses, except that medical expenses do
not include expenses for insurance other than long-term care
insurance, premiums for health care continuation coverage, and
premiums for health care coverage while an individual is
receiving unemployment compensation under Federal or State law.
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\24\ This exclusion does not apply to expenses that are reimbursed
by insurance or otherwise.
\25\ The exclusion still applies to expenses for continuation
coverage or coverage while the individual is receiving unemployment
compensation, even for an individual who is not an eligible individual.
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Distributions that are not used for medical expenses are
includible in income. Such distributions are also subject to an
additional 15-percent tax unless made after age 65, death, or
disability.
Cap on taxpayers utilizing Archer MSAs
The number of taxpayers benefiting annually from an Archer
MSA contribution is limited to a threshold level (generally
750,000 taxpayers). If it is determined in a year that the
threshold level has been exceeded (called a ``cut-off '' year)
then, in general, for succeeding years during the pilot period
1997-2002, only those individuals who (1) made an Archer MSA
contribution or had an employer Archer MSA contribution for the
year or a preceding year (i.e., are active Archer MSA
participants) or (2) are employed by a participating employer,
those individuals are eligible for an Archer MSA contribution.
In determining whether the threshold for any year has been
exceeded, Archer MSAs of individuals who were not covered under
a health insurance plan for the six month period ending on the
date on which coverage under a high deductible plan commences
would not be taken into account.\26\ However, if the threshold
level is exceeded in a year, previously uninsured individuals
are subject to the same restriction on contributions in
succeeding years as other individuals. That is, they would not
be eligible for an Archer MSA contribution for a year following
a cut-off year unless they are an active Archer MSA participant
(i.e., had an Archer MSA contribution for the year or a
preceding year) or are employed by a participating employer.
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\26\ Permitted coverage, as described above, does not constitute
coverage under a health insurance plan for this purpose.
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The number of Archer MSAs established has not exceeded the
threshold level.
End of Archer MSA pilot program
After 2002, no new contributions may be made to Archer MSAs
except by or on behalf of individuals who previously had Archer
MSA contributions and employees who are employed by a
participating employer. An employer is a participating employer
if (1) the employer made any Archer MSA contributions for any
year to an Archer MSA on behalf of employees or (2) at least 20
percent of the employees covered under a high deductible plan
made Archer MSA contributions of at least $100 in the year
2001.
Self-employed individuals who made contributions to an
Archer MSA during the period 1997-2002 also may continue to
make contributions after 2002.
Reasons for Change
Archer MSAs were enacted to provide additional health
insurance options and to give individuals more control over
their health care dollars by providing incentives for
individuals to be more cost conscious consumers of health care.
The Committee believes that an extension of the Archer MSA
program is appropriate in order to continue to pursue such
objectives.
Explanation of Provision
The provision extends the Archer MSA program for another
year, through December 31, 2003.
Effective Date
The provision is effective on the date of enactment.
C. Permanent Extension
1. Extend Exceptions under Subpart F for Active Financing Income (sec.
331 of the bill and secs. 953 and 954 of the Code)
Present Law
Under the subpart F rules, 10-percent U.S. shareholders of
a controlled foreign corporation (``CFC'') are subject to U.S.
tax currently on certain income earned by the CFC, whether or
not such income is distributed to the shareholders. The income
subject to current inclusion under the subpart F rules
includes, among other things, foreign personal holding company
income and insurance income. In addition, 10-percent U.S.
shareholders of a CFC are subject to current inclusion with
respect to their shares of the CFC's foreign base company
services income (i.e., income derived from services performed
for a related person outside the country in which the CFC is
organized).
Foreign personal holding company income generally consists
of the following: (1) dividends, interest, royalties, rents,
and annuities; (2) net gains from the sale or exchange of (a)
property that gives rise to the preceding types of income, (b)
property that does not give rise to income, and (c) interests
in trusts, partnerships, and REMICs; (3) net gains from
commodities transactions; (4) net gains from foreign currency
transactions; (5) income that is equivalent to interest; (6)
income from notional principal contracts; and (7) payments in
lieu of dividends.
Insurance income subject to current inclusion under the
subpart F rules includes any income of a CFC attributable to
the issuing or reinsuring of any insurance or annuity contract
in connection with risks located in a country other than the
CFC's country of organization. Subpart F insurance income also
includes income attributable to an insurance contract in
connection with risks located within the CFC's country of
organization, as the result of an arrangement under which
another corporation receives a substantially equal amount of
consideration for insurance of other country risks. Investment
income of a CFC that is allocable to any insurance or annuity
contract related to risks located outside the CFC's country of
organization is taxable as subpart F insurance income (Prop.
Treas. Reg. sec. 1.953-1(a)).
Temporary exceptions from foreign personal holding company
income, foreign base company services income, and insurance
income apply for subpart F purposes for certain income that is
derived in the active conduct of a banking, financing, or
similar business, or in the conduct of an insurance business
(so-called ``active financing income'').\27\
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\27\ Temporary exceptions from the subpart F provisions for certain
active financing income applied only for taxable years beginning in
1998. Those exceptions were modified and extended for one year,
applicable only for taxable years beginning in 1999. The Tax Relief
Extension Act of 1999 (P.L. No. 106-170) clarified and extended the
temporary exceptions for two years, applicable only for taxable years
beginning after 1999 and before 2002.
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With respect to income derived in the active conduct of a
banking, financing, or similar business, a CFC is required to
be predominantly engaged in such business and to conduct
substantial activity with respect to such business in order to
qualify for the exceptions. In addition, certain nexus
requirements apply, which provide that income derived by a CFC
or a qualified business unit (``QBU'') of a CFC from
transactions with customers is eligible for the exceptions if,
among other things, substantially all of the activities in
connection with such transactions are conducted directly by the
CFC or QBU in its home country, and such income is treated as
earned by the CFC or QBU in its home country for purposes of
such country's tax laws. Moreover, the exceptions apply to
income derived from certain cross border transactions, provided
that certain requirements are met. Additional exceptions from
foreign personal holding company income apply for certain
income derived by a securities dealer within the meaning of
section 475 and for gain from the sale of active financing
assets.
In the case of insurance, in addition to a temporary
exception from foreign personal holding company income for
certain income of a qualifying insurance company with respect
to risks located within the CFC's country of creation or
organization, certain temporary exceptions from insurance
income and from foreign personal holding company income apply
for certain income of a qualifying branch of a qualifying
insurance company with respect to risks located within the home
country of the branch, provided certain requirements are met
under each of the exceptions. Further, additional temporary
exceptions from insurance income and from foreign personal
holding company income apply for certain income of certain CFCs
or branches with respect to risks located in a country other
than the United States, provided that the requirements for
these exceptions are met.
In the case of a life insurance or annuity contract,
reserves for such contracts are determined as follows for
purposes of these provisions. The reserves equal the greater
of: (1) the net surrender value of the contract (as defined in
sec. 807(e)(1)(A)), including in the case of pension plan
contracts; or (2) the amount determined by applying the tax
reserve method that would apply if the qualifying life
insurance company were subject to tax under Subchapter L of the
Code, with the following modifications. First, there is
substituted for the applicable Federal interest rate an
interest rate determined for the functional currency of the
qualifying insurance company's home country, calculated (except
as provided by the Treasury Secretary in order to address
insufficient data and similar problems) in the same manner as
the mid-term applicable Federal interest rate (within the
meaning of sec. 1274(d)). Second, there is substituted for the
prevailing State assumed rate the highest assumed interest rate
permitted to be used for purposes of determining statement
reserves in the foreign country for the contract. Third, in
lieu of U.S. mortality and morbidity tables, mortality and
morbidity tables are applied that reasonably reflect the
current mortality and morbidity risks in the foreign country.
Fourth, the Treasury Secretary may provide that the interest
rate and mortality and morbidity tables of a qualifying
insurance company may be used for one or more of its branches
when appropriate. In no event may the reserve for any contract
at any time exceed the foreign statement reserve for the
contract, reduced by any catastrophe, equalization, or
deficiency reserve or any similar reserve.
Present law also provides a temporary exception from
foreign personal holding company income for income from
investment of assets equal to 10 percent of reserves
(determined for purposes of the provision) for contracts
regulated in the country in which sold as life insurance or
annuity contracts. This exception does not apply to investment
income with respect to excess surplus.
Reasons for Change
In the Taxpayer Relief Act of 1997, one-year temporary
exceptions from foreign personal holding company income were
enacted for income from the active conduct of an insurance,
banking, financing, or similar business.\28\ In the Tax and
Trade Relief Extension Act of 1998, the Congress extended the
temporary exceptions for an additional year, with certain
modifications designed to treat various types of businesses
with active financing income more similarly to each other than
did the 1997 provision.\29\ In the Tax Relief Extension Act of
1999, Congress extended the temporary extensions for an
additional two years, as modified by the 1998 Act, and with a
clarification relating to the application of prior law in the
event of future non-application of the temporary
provisions.\30\ The Committee believes that it is appropriate
to permanently extend the temporary provisions, as modified by
the previous legislation, with an additional modification
relating to the determination of certain reserves for life
insurance and annuity contracts. The Committee believes that
the use of foreign statement reserves for exempt life insurance
and annuity contracts may be appropriate under these exceptions
in certain circumstances, provided IRS approval is obtained,
based on whether such use with respect to those foreign
contracts provides an appropriate means of measuring income for
Federal income tax purposes.
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\28\ The President canceled this provision in 1997 pursuant to the
Line Item Veto Act. On June 25, 1998, the U.S. Supreme Court held that
the cancellation procedures set forth in the Line Item Veto Act are
unconstitutional. Clinton v. City of New York, 524 U.S. 417 (1998).
\29\ The Tax and Trade Relief Extension Act of 1998, Division J,
Making Omnibus Consolidated and Emergency Supplemental Appropriations
for Fiscal Year 1999, P.L. No. 105-277, sec. 1005 (1998).
\30\ The Tax Relief Extension Act of 1999, P.L. No. 106-170, sec.
503 (1999).
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Explanation of Provision
The provision extends permanently the present-law temporary
exceptions from subpart F foreign personal holding company
income, foreign base company services income, and insurance
income for certain income that is derived in the active conduct
of a banking, financing, or similar business, or in the conduct
of an insurance business.
The provision generally retains present law with respect to
the determination of an insurance company's reserve for a life
insurance or annuity contract under these exceptions. The
provision does, however, permit a taxpayer in certain
circumstances, subject to approval by the IRS through the
ruling process, to establish that the reserve for such
contracts is the amount taken into account in determining the
foreign statement reserve for the contract (reduced by
catastrophe, equalization, or deficiency reserve or any similar
reserve). IRS approval is to be based on whether the method,
the interest rate, the mortality and morbidity assumptions, and
any other factors taken into account in determining foreign
statement reserves (taken together or separately) provide an
appropriate means of measuring income for Federal income tax
purposes. In seeking a ruling, the taxpayer is required to
provide the IRS with necessary and appropriate information as
to the method, interest rate, mortality and morbidity
assumptions and other assumptions under the foreign reserve
rules so that a comparison can be made to the reserve amount
determined by applying the tax reserve method that would apply
if the qualifying insurance company were subject to tax under
Subchapter L of the Code (with the modifications provided under
present law for purposes of these exceptions). Present law
continues to apply with respect to reserves for any life
insurance or annuity contract for which the IRS has not
approved the use of the foreign statement reserve. An IRS
ruling request under this provision is subject to the present-
law provisions relating to IRS user fees.
Effective Date
The provision is effective for taxable years of foreign
corporations beginning after December 31, 2001, and for taxable
years of U.S. shareholders with or within which such taxable
years of such foreign corporations end.
D. Other Provisions
1. Discharge of Indebtedness of an S Corporation (sec. 341 of the bill
and sec. 108 of the Code)
Present Law
In general, an S corporation is not subject to the
corporate income tax on its items of income and loss. Instead,
an S corporation passes through its items of income and loss to
its shareholders. Each shareholder takes into account
separately his or her pro rata share of these items on their
individual income tax returns. To prevent double taxation of
these items, each shareholder's basis in the stock of the S
corporation is increased by the amount included in income
(including tax-exempt income) and is decreased by the amount of
any losses (including nondeductible losses) taken into account.
A shareholder may deduct losses only to the extent of a
shareholder's basis in his or her stock in the S corporation
plus the shareholder's adjusted basis in any indebtedness of
the corporation to the shareholder. Any loss that is disallowed
by reason of lack of basis is ``suspended'' at the corporate
level and is carried forward and allowed in any subsequent year
in which the shareholder has adequate basis in the stock or
debt.
In general, gross income includes income from the discharge
of indebtedness. However, income from the discharge of
indebtedness of a taxpayer in a bankruptcy case or when the
taxpayer is insolvent (to the extent of the insolvency) is
excluded from income.\31\ The taxpayer is required to reduce
tax attributes, such as net operating losses, certain
carryovers, and basis in assets, to the extent of the excluded
income.
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\31\ Special rules also apply to certain real estate debt and farm
debt.
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In the case of an S corporation, the eligibility for the
exclusion and the attribute reduction are applied at the
corporate level. For this purpose, a shareholder's suspended
loss is treated as a tax attribute that is reduced. Thus, if
the S corporation is in bankruptcy or is insolvent, any income
from the discharge of indebtedness by a creditor of the S
corporation is excluded from the corporation's income, and the
S corporation reduces its tax attributes (including any
suspended losses).
To illustrate these rules, assume that a sole shareholder
of an S corporation has zero basis in its stock of the
corporation. The S corporation borrows $100 from a third party
and loses the entire $100. Because the shareholder has no basis
in its stock, the $100 loss is ``suspended'' at the corporate
level. If the $100 debt is forgiven when the corporation is in
bankruptcy or is insolvent, the $100 income from the discharge
of indebtedness is excluded from income, and the $100
``suspended'' loss should be eliminated in order to achieve a
tax result that is consistent with the economics of the
transactions in that the shareholder has no economic gain or
loss from these transactions.
Notwithstanding the economics of the overall transaction,
the United States Supreme Court ruled in the case of Gitlitz v.
Commissioner \32\ that, under present law, income from the
discharge of indebtedness of an S corporation that is excluded
from income is treated as an item of income which increases the
basis of a shareholder's stock in the S corporation and allows
the suspended corporate loss to pass thru to a shareholder.
Thus, under the decision, an S corporation shareholder is
allowed to deduct a loss for tax purposes that it did not
economically incur.
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\32\ 531 U.S. 206 (2001).
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Reasons for Change
The Committee believes that it is inappropriate for a
shareholder of an insolvent or bankrupt S corporation to take
into account excluded income from the discharge of the S
corporation's indebtedness and thereby increase the
shareholder's adjusted basis in the stock. Under the provisions
of the Code, an increase in the stock basis allows the
shareholder a deduction for an amount of loss that is not
economically borne by the shareholder.
As a general matter, the Committee believes that where, as
in the case of the present statute under section 108, the plain
text of a provision of the Internal Revenue Code produces an
ambiguity, the provision should be read as closing, not
maintaining, a loophole that would result in an inappropriate
reduction of tax liability.
Explanation of Provision
The provision provides that income from the discharge of
indebtedness of an S corporation that is excluded from the S
corporation's income is not taken into account as an item of
income by any shareholder and thus does not increase the basis
of any shareholder's stock in the corporation.
Effective Date
The provision applies to discharges of indebtedness after
October 11, 2001.
2. Limitation on Use of Non-Accrual Experience Method of Accounting
(sec. 342 of the bill and sec. 448 of the Code)
Present Law
An accrual method taxpayer generally must recognize income
when all the events have occurred that fix the right to receive
the income and the amount of the income can be determined with
reasonable accuracy. An accrual method taxpayer may deduct the
amount of any receivable that was previously included in income
that becomes worthless during the year.
Accrual method taxpayers are not required to include in
income amounts to be received for the performance of services
which, on the basis of experience, will not be collected (the
``non-accrual experience method''). The availability of this
method is conditioned on the taxpayer not charging interest or
a penalty for failure to timely pay the amount charged.
Generally, a cash method taxpayer is not required to
include an amount in income until received. A taxpayer
generally may not use the cash method if purchase, production,
or sale of merchandise is an income producing factor. Such
taxpayers generally are required to keep inventories and use an
accrual method of accounting. In addition, corporations (and
partnerships with corporate partners) generally may not use the
cash method of accounting if their average annual gross
receipts years exceed $5 million. An exception to this $5
million rule is provided for qualified personal service
corporations. A qualified personal service corporation is a
corporation (1) substantially all of whose activities involve
the performance of services in the fields of health, law,
engineering, architecture, accounting, actuarial science,
performing arts or consulting and (2) substantially all of the
stock of which is owned by current or former employees
performing such services, their estates or heirs. Qualified
personal service corporations are allowed to use the cash
method without regard to whether their average annual gross
receipts exceed $5 million.
Reasons for Change
The Committee understands that the use of the non-accrual
experience method provides the equivalent of a bad debt
reserve, which generally is not available to taxpayers using an
accrual method of accounting. The Committee believes that
accrual method taxpayers should be treated similarly, unless
there is a strong indication that different treatment is
necessary to clearly reflect income or to address a particular
competitive situation.
The Committee understands that accrual basis providers of
qualified services (services in the fields of health, law,
engineering, architecture, accounting, actuarial science,
performing arts or consulting) compete on a regular basis with
competitors using the cash method of accounting. The Committee
believes that this competitive situation justifies the
continued availability of the non- accrual experience method
with respect to amounts due to be received for the performance
of qualified services. The Committee believes that it is
important to avoid the disparity of treatment between competing
cash and accrual method providers of qualified services that
could result if the non-accrual experience method were
eliminated with regard to amounts to be received for such
services.
The Committee also recognizes the burdens placed on small
businesses to comply with the complexity of the federal income
tax code and, in this time of economic uncertainty, the
importance of cash flow to small businesses. As such, the
Committee believes that small business service providers using
an accrual method of accounting should be permitted to continue
to use the non-accrual experience method.
In addition, the Committee believes that the formula
contained in Temp. Reg. section 1.448-2T may not clearly
reflect the amount of income that, based on experience, will
not be collected for many qualified services providers,
especially for those where significant time elapses between the
rendering of the service and a final determination that the
account will not be collected. Providers of qualified services
should not be subject to a formula that requires the payments
of taxes on receivables that will not be collected.
Explanation of Provision
Under the provision, the non-accrual experience method of
accounting is available only for amounts to be received for the
performance of qualified services and for services provided by
certain small businesses. Amounts to be received for all other
services are subject to the general rule regarding inclusion in
income. Qualified services are services in the fields of
health, law, engineering, architecture, accounting, actuarial
science, performing arts or consulting. As under present law,
the availability of this method is conditioned on the taxpayer
not charging interest or a penalty for failure to timely pay
the amount charged.
Under a special rule, the non-accrual experience method of
accounting continues to be available for the performance of
non-qualified services if the average annual gross receipts (as
defined in sec. 448(c)) of the taxpayer (or any predecessor)
does not exceed $5 million. The rules of paragraph (2) and (3)
of section 448(c) (i.e., the rules regarding the aggregation of
related taxpayers, taxpayers not in existence for the entire
three year period, short taxable years, definition of gross
receipts, and treatment of predecessors) apply for purposes of
determining the average annual gross receipts test.
The provision requires that the Secretary of the Treasury
prescribe regulations to permit a taxpayer to use alternative
computations or formulas if such alternative computations or
formulas accurately reflect, based on experience, the amount of
its year-end receivables that will not be collected. It is
anticipated that the Secretary of the Treasury will consider
providing safe harbors in such regulations that may be relied
upon by taxpayers. In addition, the provision also provides
that the Secretary of the Treasury permit taxpayers to adopt,
or request consent of the Secretary of the Treasury to change
to, an alternative computation or formula that clearly reflects
the taxpayer's experience. The provision requires the Secretary
of Treasury to approve a request provided that the alternative
computation or formula clearly reflects the taxpayer's
experience.
Effective Date
The provision is effective for taxable years ending after
date of enactment. Any change in the taxpayer's method of
accounting required as a result of the limitation on the use of
the non-accrual experience method is treated as a voluntary
change initiated by the taxpayer with the consent of the
Secretary of the Treasury. Any resultant section 481(a)
adjustment is to be taken into account over a period not to
exceed the lesser of the number of years the taxpayer has used
the non-accrual experience method of accounting or four years
under principles consistent with those in Rev. Proc. 99-49.\33\
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\33\ 1999-2C.B. 725
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TITLE IV--SUPPLEMENTAL REBATE; OTHER PROVISIONS
A. Supplemental Rebate (Sec. 401 of the Bill and Sec. 6428 of the Code)
Present Law
The Economic Growth and Tax Relief Reconciliation Act of
2001 provided for a rate reduction credit for 2001. The credit
is computed in the following manner. Taxpayers would be
entitled to a credit in tax year 2001 of 5 percent (the
difference between the 15-percent rate and the 10-percent rate)
of the amount of income that would have been eligible for the
new 10-percent rate. Taxpayers may not receive this credit in
excess of their income tax liability (determined after
nonrefundable credits).
Most eligible taxpayers have received this credit in the
form of a check issued by the Department of the Treasury. The
amount of the check was computed in the same manner as the
credit, except that it was done on the basis of tax returns
filed for 2000 (instead of 2001).
On their tax returns for 2001, taxpayers will reconcile the
amount of the credit with the check they receive in the
following manner. They will complete a worksheet calculating
the amount of the credit based on their 2001 tax return. They
will then subtract from the credit the amount of the check they
received. For many taxpayers, these two amounts would be the
same. If, however, the result is a positive number (because,
for example, the taxpayer paid no tax in 2000 but is paying tax
in 2001), the taxpayer may claim that amount as a credit
against 2001 tax liability. If, however, the result is negative
(because, for example, the taxpayer paid tax in 2000 but owes
no tax for 2001), the taxpayer is not required to repay that
amount to the Treasury. Otherwise, the checks have no effect on
tax returns filed in 2001; the amount is not includible in
gross income and it does not otherwise reduce the amount of
withholding. In no event may the Department of the Treasury
issue checks after December 31, 2001. This is designed to
prevent errors by taxpayers who might claim the full amount of
the credit on their 2001 tax returns and file those returns
early in 2002, at the same time the Treasury check might be
mailed to them. Payment of the credit (or the check) is
treated, for all purposes of the Code,\34\ as a payment of tax.
As such, the credit or the check is subject to the refund
offset provisions, such as those applicable to past-due child
support under section 6402 of the Code.
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\34\ A special rule provides that no interest will be paid with
respect to the checks.
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In general, taxpayers eligible for the credit (and the
check) are individuals other than estates or trusts,
nonresident aliens, or dependents. The determination of this
status for the relevant year is made on the basis of the
information filed on the tax return.
Reasons for Change
The Committee believes that providing supplemental rebates
will provide further stimulus to the economy.
Explanation of Provision
The bill provides a new supplemental rebate. Individuals
who filed income tax returns for 2000 \35\ (regardless of
whether they had any income tax liability or any payroll tax
liability) are eligible for this supplemental rebate. The
amount of the rebate is calculated in the following manner:
taxpayers are eligible for the maximum rebate amount for their
filing status ($300 single or married filing separately, $500
head of household, $600 joint filers) minus the amount (if any)
of any previous rebate check issued. Thus, if a single person
received $100 earlier this year as her rate reduction credit,
she will receive an additional $200. Those who earlier received
the full amounts for their filing status will receive nothing
additional. It is irrelevant whether the taxpayer showed any
amount as wages on the 2000 income tax return.
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\35\ Taxpayers who did not file an income tax return for 2000 but
who do file an income tax return for 2001 will continue to be eligible
for the rate reduction credit previously enacted, the amount of which
is dependent upon the amount of income subject to the 10-percent rate.
They are not, however, eligible for this supplemental rebate.
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Dependents and nonresident aliens are ineligible for these
supplemental rebates (as they were for the previous rebates).
The Committee expects that the IRS will send notices to
affected taxpayers explaining the computation of their
supplemental rebate amounts and how the taxpayer should
properly complete the rebate reconciliation schedule contained
in the tax return forms package.
Effective Date
The provision is effective on the date of enactment. In
order to prevent difficulties that could arise in the
simultaneous administration of two rebate provisions, the
issuance of checks under the previous rebate provision must
cease on the date of enactment of these supplemental rebates.
B. Special Reed Act Transfer in Fiscal Year 2002 (sec. 402 of the bill)
1. Repeal of Certain Provisions Added by the Balanced Budget Act of
1997
Present Law
When three Federal accounts in the Unemployment Trust Fund
(UTF) reach their statutory limits at the end of a Federal
fiscal year, any excess funds are transferred to the individual
State accounts in the UTF. These transfers are called ``Reed
Act'' distributions. States can use this funding for payment of
cash benefits and administrating their unemployment
compensation and employment services programs. The Balanced
Budget Act of 1997 limited Reed Act transfers to States to $100
million after each of fiscal years 1999, 2000, and 2001 and
limited these funds' use to paying administrative expenses of
unemployment compensation laws.
Reasons for Change
The amount of excess Federal funds in the UTF as of the end
of fiscal year 2001 was over $9.3 billion. Under current law,
at the beginning of fiscal year 2002, $100 million was
transferred to States under the special distribution provision
under the Balanced Budget Act of 1997. The additional $9.2
billion in excess funds remained in a Federal unemployment
account. Repeal of the special distribution limitation, as
provided under the Chairman's amendment, would result in the
transfer of the remaining $9.2 billion in excess Federal funds
to State accounts.
This distribution will provide States with significant
additional funds to address unemployment benefit needs. Funds
will be directly transferred into State unemployment accounts,
where they will be immediately available to support regular
unemployment benefit payments as needed. As provided below,
States also may use these new funds for additional unemployment
program purposes such as providing extended benefits through
the passage of separate State legislation.
Explanation of Provision
The $100 million limit on distributions from excess Federal
funds available at the end of fiscal year 2001 is repealed. The
provision also repeals the limitation on the use of funds
applied to the $100 million special distribution under the
Balanced Budget Act of 1997. This limitation applied only to
special distributions at the end of fiscal years 1999, 2000,
and 2001, and with the repeal of the underlying special
distribution provision is no longer relevant.
2. Special Transfer in Fiscal Year 2002
Present Law
No provision.
Reason for Change
Because of limitations imposed by the Balanced Budget Act
of 1997, regular Reed Act distributions have not been
transferred to States following fiscal years 1999, 2000 and
2001. Instead, transfers were limited to a ``special
distribution'' of $100 million per year at the beginning of
each of the subsequent fiscal years, including fiscal year
2002. The result has been a significant accumulation of excess
funds in Federal accounts. Absent changes such as those
proposed in H.R. 3090, these excess funds will remain in
Federal accounts until regular Reed Act transfers resume at the
beginning of fiscal year 2003 (on or about October 1, 2002).
The purpose of Section 402 is to accelerate the transfer of
surplus Federal unemployment funds for States to use in
supporting unemployment benefits and services to help
individuals return to work. Federal unemployment accounts, with
balances totaling $39 billion at the end of fiscal year 2001,
are more than sufficient to support current Federal
administrative and other responsibilities under the Federal-
State unemployment compensation system. Forwarding Federal
surplus funds will provide immediate assistance to States--
especially those with low account balances--to support rising
benefit needs as well as demand for extended benefits,
additional employment services, and other supports.
H.R. 3090 is consistent with the operation of the Federal-
State unemployment compensation program dating to the 1950s,
the Committee's longstanding interest in promoting State
flexibility and control in deciding how best to support benefit
needs, and the need to maintain fiscal responsibility.
As described above, Reed Act distributions have occurred in
various fiscal years dating to the 1950s. The 1997 Balanced
Budget Act provision created special conditions under which
full Reed Act transfers have not been transferred to State
accounts in recent years. H.R. 3090 restores the longstanding
policy of providing full Reed Act transfers to State accounts,
effective immediately (rather than as of the start of fiscal
year 2003 as under current law).
Starting with the 1996 Welfare Reform Law (P.L. 104-193,
the Personal and Work Opportunity Reconciliation Act of 1996),
the Committee has advanced legislation encouraging greater
State flexibility and responsibility over cash welfare, child
care, child protection and related programs. This goal is
consistent with the nation's Federal-State unemployment
compensation program, under which States generally determine
benefit eligibility and amounts; States also set and collect
State unemployment taxes used to support regular unemployment
compensation benefits and the State half of the Federal-State
extended benefits program. H.R. 3090 promotes State discretion
in determining benefit eligibility and amounts by both
providing States additional resources and broad discretion in
determining how best to use the added Federal funds.
For example, some States with low current account balances
may use the added Federal funds to support the payment of
regular unemployment benefits, which would require no new State
legislation. Depending on State laws and prior account
balances, the added funds may allow States to provide regular
benefits for additional claimants without raising State taxes
or borrowing from the Federal loan account. Based on fiscal
year 2001 benefit payment and recipient data, between 2 million
and 3 million additional unemployed workers could be provided
regular benefits based on the $9 billion in additional Federal
funds.
Other States may choose to provide new benefits, for
example extended benefits for individuals who have exhausted
their regular 26 weeks of benefits. On October 4, 2001,
President Bush proposed providing an additional 13 weeks of
emergency extended benefits for individuals in States that
include a major disaster area or in which unemployment has
increased by 30 percent or more in the wake of the September 11
attacks. Section 402 provides States with the funds and
flexibility to offer such benefits.
Some States may need additional resources to provide
employment services to assist unemployed individuals in
returning to work or to process additional unemployment claims.
Section 402 allows States to use transferred amounts to support
such program purposes as well. It is noteworthy that in recent
years States have received far less in Federal funds to assist
in administering the unemployment compensation program than
employers paid in Federal taxes to support such purposes. The
Ways and Means Subcommittee on Human Resources has held a
number of hearings in recent years on the administrative
financing of the unemployment program (Unemployment
Compensation and the Family and Medical Leave Act, March 9,
2001; Unemployment Compensation Reform, February 29, 2001;
Unemployment Compensation, September 7, 2000; HR 3684, the
``Employment Security Financing Act of 1998,'' June 23, 1998;
and Unemployment Insurance Issues, April 24, 1997). While
falling short of broader administrative financing reforms in
which the Committee remains interested, Section 402 provides
States broad discretion and immediate Federal funds States may
use to address employment service and administrative financing
needs.
Section 402 provides the above funding and flexibility
while maintaining the interest of the Committee and the
Congress in fiscal discipline. According to the Congressional
Budget Office, Section 402 results in no increase in the
deficit or decrease in the surplus over 10 years. By
accelerating future Reed Act distributions into fiscal year
2002, the proposal provides significant immediate assistance to
States to support benefit and other program needs. Transfers
provided in 2002 are offset by reductions in future transfers,
among other program interactions.
The Committee notes that the National Governors Association
(NGA) has requested passage of this provision. A letter dated
October 4, 2001 signed by Governors Don Sundquist of Tennessee
and Frank O'Bannon of Indiana, the Chairman and Vice Chairman,
respectively, of NGA's Committee on Human Resources, called for
Congress to ``amend the Social Security Act to accelerate
distribution to state accounts of the excess funds (as defined
in the Reed Act) being held in the federal Unemployment Trust
Fund.''
Explanation of Provision
The Secretary of the Treasury will transfer excess Federal
UTF balances as of the close of fiscal year 2001 into the
account of each State in the UTF. Each State's share of
distributions from the $100 million already provided at the
beginning of fiscal year 2002 will be subtracted from the
distribution to each State under this provision. (Thus of the
$9.3 billion in excess Federal funds as of the end of fiscal
year 2001, only $9.2 billion will be provided under H.R. 3090,
reflecting the fact that $0.1 billion already has been
forwarded to State accounts under the 1997 Balanced Budget Act
provision.)
Except as provided below, amounts transferred to State
accounts may be used only in the payment of cash benefits to
individuals with respect to unemployment under the following
conditions:
(1) At the option of the State, cash benefits may
include regular unemployment compensation or additions
to regular benefits. However, if additions to regular
benefits are provided, any additional amounts are to be
disregarded in determining any subsequently-provided
extended benefits to such individual; and
(2) At the option of the State, cash benefits may be
provided to individuals not otherwise eligible for
regular unemployment compensation benefits under the
laws of the State. Such benefits may include
``emergency'' extended benefits or other benefit
expansions. Benefits to an individual under this
condition may not exceed the maximum amount of regular
compensation available under State law for the same
period, plus any added benefits provided under (1)
above.
Under either condition (1) or (2), amounts transferred may
be used in the payment of cash benefits to individuals only for
weeks of unemployment beginning after the date of enactment and
ending on or before March 11, 2003 (i.e. within 18 months
following the September 11, 2001 attacks).
Other than for cash benefits, States may use amounts
transferred to their accounts in the administration of their
public employment laws and public employment offices, including
for the provision of employment services needed to help
individuals return to work.
Transfers to State accounts are to be made by the Secretary
of Labor no later than 10 days after enactment.
3. Limitations on Transfers
Present Law
If the Secretary finds that a State is not eligible to
receive Reed Act transfers at the beginning of a fiscal year,
the amount available for transfer to the State instead is
transferred to the Federal unemployment account. If the State
becomes eligible during the following one year period, the
amount which was available for transfer will be transferred
from the Federal unemployment account to the State's account.
If the State does not become eligible within one year, the
amount remains in the Federal unemployment account for other
uses. If any State has borrowed from the Federal unemployment
account, any amount that would be transferred is retained and
credited against any balance due of the State.
Reasons for Change
Funds should be transferred only to States operating
unemployment compensation programs that meet Federal
requirements. This provision ensures that the special transfers
in fiscal year 2002 also will meet these requirements.
Explanation of Provision
This provision applies the same conditions on the timing
and limitations on Reed Act transfers under current law to the
special transfers that would occur in fiscal year 2002 under
the Committee legislation.
4. Technical Amendments
Present Law
No provision.
Reasons for Change
Technical and conforming changes consistent with changes
described above.
Explanation of Provision
Makes conforming and technical amendments related to the
use of funds in State unemployment accounts for expenses
incurred by States for administration of their unemployment
compensation laws and public employment offices.
5. Regulations
Present Law
No provision.
Reasons for Change
This provision authorizes the Secretary of Labor to provide
the operating instructions necessary to ensure proper
implementation of the changes proposed. Given the immediate
nature of the transfers, the generally short-term nature of
uses for transferred amounts, and likely State desire to begin
using these funds as soon as possible to support benefit needs,
it is anticipated that operating instructions will be provided
by the U.S. Department of Labor as appropriate.
Explanation of Provision
The Secretary of Labor may prescribe any operating
instructions or regulations necessary to carry out this section
and amendments made by it.
TITLE V--HEALTH CARE ASSISTANCE FOR THE UNEMPLOYED
A. Health Care Assistance for the Unemployed
Present Law
Title XX of the Social Security Act, referred to as the
Social Services Block Grant (SSBG), provides flexible block
grant funds to States to assist them in delivering a wide range
of social services to needy children and adults. A service may
be funded in its entirety, or it can be supplemented with other
funding sources. State and local agencies may provide the
services or purchase them from qualified agencies,
organizations, or individuals. States are required to report
annually on their expenditures of SSBG funds. In fiscal year
2001, $1.725 billion was appropriated for the SSBG program and
was allotted to the States and Territories (Puerto Rico, Guam,
the Virgin Islands, American Samoa, and the Northern Marianas).
Allotments to States are by a formula based on population.
Reasons for Change
The provision provides States additional funds to address
the health care needs of unemployed workers and their families.
Under this provision, which operates under an existing block
grant program within the Human Resources jurisdiction of the
Committee, States would have the flexibility to use new Federal
funds to assist uninsured individuals in their communities. For
example, the funds would be able to be used to defray the cost
of private health coverage or coverage under existing State and
local health care programs for which unemployed workers and
their dependents would not otherwise be eligible.
Explanation of Provision
Funding for the Social Services Block Grant program would
be increased by $3 billion in fiscal year 2002. The increased
funding would be available to States only to assist in
providing health care coverage for unemployed workers and their
families who do not have other Federal health care coverage.
Funds are to supplement (not supplant) any other Federal,
State, or local funds used for health care coverage.
III. VOTES OF THE COMMITTEE
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statements are made
concerning the votes of the Committee on Ways and Means in its
consideration of the bill, H.R. 3090.
MOTION TO REPORT THE BILL
The bill, H.R. 3090, as amended, was ordered favorably
reported by a rollcall vote of 23 yeas to 14 nays (with a
quorum being present). The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representatives Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas..................... X Mr. Rangel....... X
Mr. Crane...................... X Mr. Stark........ X
Mr. Shaw....................... Mr. Matsui....... X
Mrs. Johnson................... X Mr. Coyne........ X
Mr. Houghton................... X Mr. Levin........ X
Mr. Herger..................... X Mr. Cardin....... X
Mr. McCrery.................... X Mr. McDermott.... X
Mr. Camp....................... X Mr. Kleczka...... X
Mr. Ramstad.................... X Mr. Lewis (GA)... X
Mr. Nussle..................... X Mr. Neal......... X
Mr. Johnson.................... X Mr. McNulty......
Ms. Dunn....................... X Mr. Jefferson....
Mr. Collins.................... X Mr. Tanner....... X
Mr. Portman.................... X Mr. Becerra...... X
Mr. English.................... X Mrs. Thurman..... X
Mr. Watkins.................... X Mr. Doggett...... X
Mr. Hayworth................... X Mr. Pomeroy......
Mr. Weller..................... X
Mr. Hulshof.................... X
Mr. McInnis.................... X
Mr. Lewis (KY)................. X
Mr. Foley...................... X
Mr. Brady...................... X
Mr. Ryan....................... X
----------------------------------------------------------------------------------------------------------------
VOTES ON AMENDMENTS
A rollcall vote was conducted on the following amendment to
the Chairman's amendment in the nature of a substitute.
An amendment by Mr. Stark, which would create a Federal
subsidy equal to 75 percent of COBRA premiums for up to 12
months, and would not change the underlying eligibility for
COBRA coverage, was defeated by a rollcall vote of 16 yeas to
25 nays. The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representatives Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas..................... X Mr. Rangel....... X
Mr. Crane...................... X Mr. Stark........ X
Mr. Shaw....................... X Mr. Matsui....... X
Mrs. Johnson................... X Mr. Coyne........ X
Mr. Houghton................... X Mr. Levin........ X
Mr. Herger..................... X Mr. Cardin....... X
Mr. McCrery.................... X Mr. McDermott.... X
Mr. Camp....................... X Mr. Kleczka...... X
Mr. Ramstad.................... X Mr. Lewis (GA)... X
Mr. Nussle..................... X Mr. Neal......... X
Mr. Johnson.................... X Mr. McNulty...... X
Ms. Dunn....................... X Mr. Jefferson.... X
Mr. Collins.................... X Mr. Tanner....... X
Mr. Portman.................... X Mr. Becerra...... X
Mr. English.................... X Mrs. Thurman..... X
Mr. Watkins.................... X Mr. Doggett...... X
Mr. Hayworth................... X Mr. Pomeroy...... X
Mr. Weller..................... X
Mr. Hulshof.................... X
Mr. McInnis.................... X
Mr. Lewis (KY)................. X
Mr. Foley...................... X
Mr. Brady...................... X
Mr. Ryan....................... X .........
----------------------------------------------------------------------------------------------------------------
An amendment by Messrs. Cardin and McDermott, that would
add a new section to provide temporary unemployment
compensation, was defeated by a rollcall vote of 18 yeas to 22
nays. The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representatives Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas..................... ........ X ......... Mr. Rangel....... X ........ .........
Mr. Crane...................... ........ X ......... Mr. Stark........ X ........ .........
Mr. Shaw....................... ........ X ......... Mr. Matsui....... X ........ .........
Mrs. Johnson................... ........ X ......... Mr. Coyne........ X ........ .........
Mr. Houghton................... X ........ ......... Mr. Levin........ X ........ .........
Mr. Herger..................... ........ X ......... Mr. Cardin....... X ........ .........
Mr. McCrery.................... ........ X ......... Mr. McDermott.... X ........ .........
Mr. Camp....................... ........ X ......... Mr. Kleczka...... ........ X .........
Mr. Ramstad.................... ........ X ......... Mr. Lewis (GA)... X ........ .........
Mr. Nussle..................... ........ X ......... Mr. Neal......... ........ ........ .........
Mr. Johnson.................... ........ X ......... Mr. McNulty...... X ........ .........
Ms. Dunn....................... ........ X ......... Mr. Jefferson.... X ........ .........
Mr. Collins.................... ........ X ......... Mr. Tanner....... X ........ .........
Mr. Portman.................... ........ X ......... Mr. Becerra...... X ........ .........
Mr. English.................... X ........ ......... Mrs. Thurman..... X ........ .........
Mr. Watkins.................... ........ X ......... Mr. Doggett...... X ........ .........
Mr. Hayworth................... ........ X ......... Mr. Pomeroy...... X ........ .........
Mr. Weller..................... ........ X .........
Mr. Hulshof.................... ........ X .........
Mr. McInnis.................... ........ X .........
Mr. Lewis (KY)................. ........ X .........
Mr. Foley...................... ........ X .........
Mr. Brady...................... ........ X .........
Mr. Ryan....................... ........ X .........
----------------------------------------------------------------------------------------------------------------
An amendment by Mr. Kleczka, which would eliminate the
refundable credit for corporate AMT liabilities, was defeated
by a rollcall vote of 13 yeas to 23 nays. The vote was as
follows:
----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representatives Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas..................... ........ X ......... Mr. Rangel....... X ........ .........
Mr. Crane...................... ........ X ......... Mr. Stark........ X ........ .........
Mr. Shaw....................... ........ ........ ......... Mr. Matsui....... X ........ .........
Mrs. Johnson................... ........ X ......... Mr. Coyne........ X ........ .........
Mr. Houghton................... ........ X ......... Mr. Levin........ X ........ .........
Mr. Herger..................... ........ X ......... Mr. Cardin....... ........ ........ .........
Mr. McCrery.................... ........ X ......... Mr. McDermott.... X ........ .........
Mr. Camp....................... ........ X ......... Mr. Kleczka...... X ........ .........
Mr. Ramstad.................... ........ X ......... Mr. Lewis (GA)... X ........ .........
Mr. Nussle..................... ........ X ......... Mr. Neal......... X ........ .........
Mr. Johnson.................... ........ X ......... Mr. McNulty...... ........ ........ .........
Ms. Dunn....................... ........ X ......... Mr. Jefferson.... ........ ........ .........
Mr. Collins.................... ........ X ......... Mr. Tanner....... ........ ........ .........
Mr. Portman.................... ........ X ......... Mr. Becerra...... X ........ .........
Mr. English.................... ........ X ......... Mrs. Thurman..... X ........ .........
Mr. Watkins.................... ........ X ......... Mr. Doggett...... X ........ .........
Mr. Hayworth................... ........ X ......... Mr. Pomeroy...... X ........ .........
Mr. Weller..................... ........ X .........
Mr. Hulshof.................... ........ X .........
Mr. McInnis.................... ........ X .........
Mr. Lewis (KY)................. ........ X .........
Mr. Foley...................... ........ X .........
Mr. Brady...................... ........ X .........
Mr. Ryan....................... ........ X .........
----------------------------------------------------------------------------------------------------------------
IV. BUDGET EFFECTS OF THE BILL
A. Committee Estimate of Budgetary Effects
In compliance with clause 3(d)(2) of the rule XIII of the
Rules of the House of Representatives, the following statement
is made concerning the effects on the budget of the revenue
provisions of the bill, H.R. 3090 as reported.
The bill is estimated to have the following effects on
budget receipts for fiscal years 2002-2006:
ESTIMATED BUDGET EFFECTS OF THE REVENUE PROVISIONS CONTAINED IN H.R. 3090, THE ``ECONOMIC SECURITY AND RECOVERY ACT OF 2001,'' AS REPORTED BY THE
COMMITTEE ON WAYS AND MEANS
[Fiscal years 2002-2006, in millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Provision Effective 2002 2003 2004 2005 2006 2002-06
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cost Recovery Provisions
1. 30% expensing of the value of capital ppiso/a 9/11/01 -39,301 -36,125 -30,295 -6,904 22,299 -76,518
assets with MACRS lives of 20 years or
less and purchased software (sunset after
36 months) \1\............................
2. Increase in section 179 expensing to tyba 12/31/01 -852 -1,406 -142 682 466 -1,251
$35,000, and increase beginning point for
phaseout to $325,000 for 24 months........
3. 15-year life leasehold improvements \2\. lipiso/a 9/11/01 -78 -202 -369 -533 -684 -1,865
-----------------------------------------------------------------------------
Total of Cost Recovery Provisions.... ............................. -40,231 -37,733 -30,806 7,053 22,081 -79,634
=============================================================================
Net Operating Loss Provision--5-Year NOLs gi tyeo/a 9/11/01 -4,704 -3,528 -1,910 3,418 3,026 -3,699
Carryback of Net Operating Losses and
Waive the AMT 90% Limitation on the
Allowance of Losses (sunset after 36
months)...................................
Alternative Minimum Tax Provisions-Repeal tyba 12/31/00 -25,397 822 1,209 736 189 -22,441
the corporate AMT and fully refund AMT
credits \3\...............................
Deferral of Multinational Business Income tyba 12/31/01 -260 -1,252 -1,441 -1,659 -1,911 -6,523
Provision--Permanently extend exceptions
under subpart F for active financing
income....................................
Provisions Affecting Individual Taxpayers
1. Supplemental Rebate--Provide a rebate DOE -13,733 ........... ........... ........... ........... -13,733
($300 individual, $600 married filing
jointly, and $500 head-of-household) for
individuals who filed a tax return in 2000
other than dependents and nonresident
aliens; rebate amount reduced by amount of
rebate individual received under H.R. 1836
\4\.......................................
2. Accelerate the 25% individual income tax tyba 12/31/01 -12,816 -18,862 -12,196 -7,685 -2,106 -53,665
rate scheduled to go into effect in 2006
to 2002...................................
3. Increase AMT exemption by $1,600 non- tyba 12/31/01 -717 -2,063 -2,315 -1,250 ........... -6,345
joint/$3,200 joint for 2002 and 2003, and
$850 non-joint/$1,700 joint for 2004......
4. Increase deduction of capital losses of tyba 12/31/01 -840 -1,224 83 54 25 -1,903
individuals against ordinary income from
$3,000 to $4,000 for taxable year 2001
only and $5,000 for taxable year 2002 only
5. Simplify individual capital gains-- soeo/a 10/12/01 -535 1,451 -1,033 -2,420 -2,385 -4,922
repeal mark-to-market and the 5-year
holding period and allow adjusted net
capital gains to qualify for the 18%/8%
capital gains rates.......................
6. Expand the exemption from the early (\5\) -13 -59 -33 1 1 -103
withdrawal tax for health insurance
expenses for unemployed individuals.......
-----------------------------------------------------------------------------
Total of Provisions Affecting ............................. -28,654 -20,757 -15,494 -11,300 -4,465 -80,671
Individual Taxpayers................
=============================================================================
Extension of Expiring Provisions and
Technical Amendments
1. Two-year extension of provisions
expiring in 2001:
a. Treatment of nonrefundable personal tyba 12/31/01 -123 -664 -695 ........... ........... -1,482
credits under the individual
alternative minimum tax \6\...........
b. Work opportunity tax credit......... wpoifibwa 12/31/01 -92 -246 -247 -130 -51 -766
c. Welfare-to-work tax credit.......... wpoifibwa 12/31/01 -27 -79 -90 -54 -23 -272
d. Tax credit for electricity ppisa 12/31/01 -9 -26 -33 -34 -34 -136
production from wind, closed-loop
biomass, and poultry litter--
facilities placed in service date.....
e. Suspension of 100 percent-of-net- tyba 12/31/01 -27 -41 -14 ........... ........... -82
income limitation on percentage
depletion for oil and gas from
marginal wells........................
f. Qualified zone academy bonds........ tyba 12/31/01 (\7\) -2 -7 -14 -20 -43
g. Temporary increase in limit on cover DOE -65 -61 -14 ........... ........... -140
over of rum excise tax revenues (from
$10.50 to $13.25 per proof gallon) to
Puerto Rico and the Virgin Islands \8\
h. Suspension of requirement that DOE Negligible Revenue Effect
terminals selling diesel fuel and
kerosene must sell both dyed and
undyed fuel...........................
i. Deductions for clean-fuel vehicles ppisa 12/31/01 \9\ -9 -19 -18 -13 2 -57
and refueling property................
j. Tax credit for electric vehicles.... ppisa 12/31/01 \10\ -25 -43 -41 -34 -20 -163
k. Tax on failure to comply with mental pybo/a 1/1/02 Negligible Revenue Effect
health parity requirements applicable
to group health plans.................
2. One-year extension of provision expiring DOE ........... (\7\) -2 -2 -2 -7
in 2002-Archer medical savings accounts
(``MSAs'')................................
3. Technical Amendments:
a. Limit use of non-accrual experience tyea DOE 14 62 33 29 16 154
method of accounting to amounts to be
received for the performance of
qualified professional services.......
b. Reverse the Supreme Court's decision da 10/11/01 58 85 89 93 97 423
in Gitlitz v. Commissioner (relating
to subchapter S corporations).........
-----------------------------------------------------------------------------
Total of Extension of Expiring ............................. -305 -1,034 -1,039 -159 -35 -2,571
Provisions and Technical Amendments.
=============================================================================
Net total............................ ............................. -99,551 -63,482 -49,481 -1,911 -18,885 -195,539
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ A binding contract placed-in-service extension would apply in certain cases.
\2\ Provision is not eligible for the 30% expensing provision.
\3\ Includes outlay effect of $16,068 million in fiscal year 2002.
\4\ Includes outlay effect of $13,733 million in fiscal year 2002.
\5\ Effective for distributions made after the date of enactment to individuals who receive unemployment compensation for four consecutive weeks during
the period from September 11, 2001, to December 31, 2002.
\6\ The ``Economic Growth and Tax Relief Reconciliation Act of 2001'' provides that the child tax credit and adoption tax credit are allowed for
purposes of the alternative minimum tax for 2002 through 2010.
\7\ Loss of less than $500,000.
\8\ Estimate provided by the Congressional Budget Office.
\9\ The deduction phases down for vehicles placed in service after 12/31/03. The deductible amount is reduced by 25 percent in 2004, 50 percent in 2005,
and 75 percent in 2006. No expensing is available after 2006.
\10\ The credit phases down for vehicles placed in service after 12/31/03. The deductible amount is reduced by 25 percent in 2004, 50 percent in 2005,
and 75 percent in 2006. No credit is available after 2006.
Legend for ``Effective'' column: da=discharges after; DOE=date of enactment; gi-generated in; lipiso/a=leasehold improvements placed in service on or
after; NOLs=net operating losses; ppisa=property placed in service after; ppiso=property placed in service on or after; pybo/a=plan years beginning on
or after; soeo/a=sales or exchanges on or after; tyba=taxable years beginning after; tyeo/a=taxable years ending after; tyeo/a=taxable years ending on
or after; wpoifibwa=wages paid or incurred for individuals beginning work after.
Note.--Details may not add to totals due to rounding.
Source: Joint Committee on Taxation.
B. Statement Regarding New Budget Authority and Tax Expenditures Budget
Authority
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves new or increased budget authority (as detailed in
the statement by the Congressional Budget Office (``CBO''); see
Part IV.C., below). The Committee further states that the
revenue reducing income tax provisions involve increased tax
expenditures. (See amounts in table in Part IV.A., above.)
C. Cost Estimate Prepared by the Congressional Budget Office
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the CBO, the following statement by CBO is
provided.
U.S. Congress,
Congressional Budget Office,
Washington, DC, October 17, 2001.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 3090, the Economic
Security and Recovery Act of 2001.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Erin
Whitaker.
Sincerely,
Dan L. Crippen,
Director.
Enclosure.
H.R. 3090--Economic Security and Recovery Act of 2001
Summary: H.R. 3090 would reduce tax receipts from
corporations by increasing and extending certain deductions and
exemptions and by repealing the alternative minimum tax. It
also would provide a tax rebate to certain individual tax
filers, accelerate the reduction of the prior-law 28 percent
individual income tax rate of 25 percent in calendar years 2002
and thereafter, and reduce the rate at which capital gains are
taxed for individuals. In addition, the bill would extend
numerous tax credits and make certain other changes.
The Congressional Budget Office (CBO) and the Joint
Committee on Taxation (JCT) estimate that H.R. 3090 would
decrease governmental receipts by $69.7 billion in 2002, by
$164.7 billion over the 2002-2006 period, and by $128.2 billion
over the 2002-2011 period. In addition, the bill would increase
direct spending by $31.5 billion in 2002 and $2.7 billion in
203. In total, H.R. 3090 would reduce projected total surpluses
by an estimated $162 billion over the 2002-2011 period. Because
the bill would affect receipts and direct spending, pay-as-you-
go procedures would apply.
The review of H.R. 3090 by JCT and CBO identified no
intergovernmental mandates as defined in the Unfunded Mandates
Reform Act (UMRA). CBO reviewed four sections of the bill
(sections 103, 310, 402, and 501), two of which would provide
benefits to state governments: one by accelerating transfers of
funds to state accounts for unemployment compensation benefits,
and another by providing grants to states for health insurance
assistance to unemployed individuals.
JCT has determined that the provisions that limit use of
the non-accrual experience method of accounting and that alter
the treatment of discharge of indebtedness of an S corporation
contain private-sector mandates. CBO has determined that
section 301 of the bill, which extends the provisions of the
Mental Health Parity Act, contains a private-sector mandate.
CBO and JCT estimate that the direct cost of the private-sector
mandates in the bill would exceed the annual threshold
established by UMRA ($113 million in 2001, adjusted for
inflation) in each of the years that the mandates would be
effective.
Major provisions
Title I, entitled Business Provisions, would:
Allow taxpayers to deduct an additional 30
percent of the value of certain qualifying capital
assets and software in the first year if such property
is placed in service before January 1, 2005;
Increase the maximum dollar amount that may
be deducted on qualifying property in lieu of
depreciation from $24,000 ($25,000 in taxable years
beginning after 2003) to $35,000 for property placed in
service after December 31, 2001, and before January 1,
2004, and increase the beginning point at which such
treatment is phased out to $325,000 before January 1,
2004;
Allow taxpayers to depreciate certain
improvements to leasehold property over 15 years;
Extend to five years the period in which
taxpayers may carry back net operating losses in
taxable years arising on or after September 11, 2001,
and ending before September 11, 2004;
Repeal the corporate Alternative Minimum Tax
(AMT) and make the AMT credit refundable; and
Extend permanently the deferral of certain
active financing income of multinational business.
Title II, entitled Individual Provisions, would:
Accelerate the reduction of the prior-law 28
percent individual income tax rate to 25 percent in
calendar year 2002 and thereafter;
Increase the AMT exemption amount for
individuals for taxable years beginning after December
31, 2001, and before January 1, 2005;
Increase the deduction of capital losses of
individuals against ordinary income from $3,000 to
$4,000 for taxable year 2001, and to $5,000 for taxable
year 2002;
Reduce the tax rates on the adjusted net
capital gain of an individual from 20 percent and 10
percent to 18 percent and 8 percent, respectively, and
repeal the special rules for certain gain from property
held more than five years; and
Expand the exception of the tax on early
withdrawal of IRA distributions to distribution used
for health insurance by unemployed individuals if those
distributions were made by individuals between
September 11, 2001, and December 31, 2002.
Title III, entitled Extensions of Certain Expiring
Provisions, would:
Allow an individual to offset all regular
tax liability and AMT liability by personal
nonrefundable credits in 2002 and 2003;
Extend several tax credits for two years,
including the work opportunity tax credit and the
welfare-to-work tax credit;
Allow new contributions to be made to Archer
medical savings accounts through December 31, 2003, for
those individuals who would no longer be able to
contribute under current law;
Extend the Mental Health Parity Act of 1996,
which expired September 30, 2001, for an additional 2
years;
Limit the use of the experience method of
accounting; and
Provide that income from the discharge of
indebtedness of an S corporation not be taken into
account as an item of income by any shareholder.
Title IV, entitled Supplemental Rebate; Other Provisions,
would:
Provide an additional rebate to those
taxpayers who filed income tax returns for 2000 if they
were eligible for rebates under the Economic Growth and
Tax Relief Reconciliation Act of 2001 (EGTRRA) and did
not receive the maximum rebate amount under the act;
and
Accelerate transfers from the federal
unemployment accounts to the state accounts in the
unemployment trust fund.
Title V, entitled Health Care Assistance for the
Unemployed, would increase by $3 billion Social Services Block
Grants to states for health care assistance for the unemployed.
Estimated cost to the Federal Government: The estimated
budgetary impact of H.R. 3090 is shown in the following table.
Most of the budgetary effects of the legislation are reductions
in revenues. However, enacting the bill also would increase
outlays by making the AMT credit refundable and by providing
additional rebates to some taxpayers who were eligible for
rebates under EGTRRA. Enacting H.R. 3090 also would increase
outlays by accelerating transfers from the federal unemployment
accounts to the state accounts in the unemployment trust fund.
In addition, outlays would result from new grants to states for
health insurance coverage for the unemployed. The spending
effects of this legislation would fall within budget functions
500 (education, training, employment, and social services), 600
(income security), and 800 (general government).
Basis of estimate
Revenues
All the estimates for the revenue provisions, with the
exception of the provision relating to unemployment trust fund
revenues (detailed in the direct-spending section) and the
provision relating to the extension of the Mental Health Parity
Act of 1996 (detailed in the discussion of the private-sector
impact), were provided by the JCT.
Of the provisions estimated by the JCT, four provisions
would comprise the majority of the changes in revenues if H.R.
3090 were enacted. The provisions that allow taxpayers to
deduct an additional 30 percent of the value of certain assets,
repeal the alternative minimum tax, extend permanently the
deferral of certain active financing income of multinational
businesses, and accelerate the reduction of the prior-law 28
percent individual income tax rate to 25 percent in calendar
year 2002 would, if enacted, reduce revenues by an estimated
$61.7 billion in 2002, $143.1 billion over the 2002-2006
period, and $100.9 billion over the 2002-2011 period.
Direct spending
Allow Corporations to Treat Alternative Minimum Tax Credits
as Refundable. Under current law, if a corporation is subject
to the AMT in any year, the amount of the AMT is allowed as a
credit against income in any subsequent taxable year if the
regular tax liability exceeds a certain amount. Under H.R.
3090, if the AMT credit exceeded the taxpayer's 2001 tax
liability, the taxpayer would receive the excess as a refund.
CBO considers that excess to be an outlay. CBO expects that all
refunds of the credit--totaling $16.1 billion--would be made in
2002, and that there would be no future outlays for this
purpose as the AMT would be repealed under the bill.
ESTIMATED BUDGETARY IMPACT OF H.R. 3090
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
----------------------------------------------------------------
2002 2003 2004 2005 2006
----------------------------------------------------------------------------------------------------------------
CHANGES IN REVENUES
Title I: Business Provisions................... -54,981 -42,502 -33,822 9,957 25,296
Title II: Individual Provisions................ -14,204 -18,694 -13,179 -10,050 -4,465
Title III: Extensions of Certain Expiring -490 -2,295 -2,490 -1,818 -1,946
Provisions....................................
Title IV: Supplemental Rebate; Other Provisions -0 100 300 300 300
----------------------------------------------------------------
Total Changes in Revenues................ -69,675 -63,391 -49,191 -1,611 19,185
On-Budget............................ -69,670 -63,383 -49,188 -1,611 19,185
Off-Budget........................... -5 -8 -3 0 0
CHANGES IN DIRECT SPENDING
Outlays for Refundable AMT Credit.............. 16,068 0 0 0 0
Outlays for Supplemental Rebate................ 13,733 0 0 0 0
Accelerated Transfer to State Unemployment 700 700 0 0 0
Trust Fund \1\................................
Increase in Social Services Block Grant........ 1,000 2,000 0 0 0
----------------------------------------------------------------
Total Changes in Direct Spending Outlays. 31,501 2,700 0 0 0
Net Increase or Decrease (-) in the Budget -101,176 -66,091 -49,191 1,611 19,185
Surplus.......................................
----------------------------------------------------------------------------------------------------------------
\1\ Under more realistic assumptions about likely unemployment in the near term, CBO would expect the increase
in outlays to be greater in the short term--totaling about $4.5 billion in fiscal years 2002 and 2003.
However, this increase in spending would be completely offset by revenue increases and by reduced spending in
the following seven fiscal years.
Sources: Joint Committee on Taxation and Congressional Budget Office.
Supplemental Rebate. The bill would provide an additional
rebate to those taxpayers who filed a tax return for 2000 and
were eligible for payment under the advance refund mechanism in
EGTRRA but who did not receive the maximum amount ($300 for
individual taxpayers or married taxpayers filing separately,
$500 for taxpayers filing as heads of households, and $600 for
married taxpayers filing jointly). Under normal budgetary
procedures, the amount of a rebate or refundable tax credit
that exceeds an individual's tax liabilities is considered a
form of spending, rather than an offset to revenues. This
supplemental rebate falls in spending category because, under
current law, taxpayers have received (in 2001) or will receive
(in 2002) credits allowed under EGTTRA at least up to the
amounts of their 2001 tax liabilities. Thus, the supplemental
rebates represent amounts in excess of individuals' tax
liabilities for 2001 and should be classified as outlays.
JCT estimates that the additional refunds will total about
$13.7 billion. CBO expects that all outlays would be made in
fiscal year 2002.
Transfers from Federal Unemployment Accounts. Section 402
of the bill would accelerate transfers from the federal
unemployment accounts to the state accounts in the unemployment
trust fund. CBO estimates that roughly $40 billion of these
transfers could be anticipated over the 2002-2011 period under
provisions of current law. The bill would provide for the
immediate transfer of $9.3 billion from federal accounts to the
state accounts in the unemployment trust fund, amounts that the
states otherwise would receive during the 2003-2005 period.
States would be allowed to spend those funds on unemployment
compensation or on administrative costs associated with
unemployment and employment services.
CBO expects that states would spend a portion of these
funds in fiscal years 2002 and 2003. Under the economic
assumptions underlying the budget resolution, the additional
outlays are estimated to total $1.4 billion over the next two
years. If unemployment rates were to approach 6.0 percent in
2002, CBO estimates the additional spending would be somewhat
higher--about $4.5 billion--during the 2002-2003 period.
However, over the longer run, this additional spending would be
completely offset by increases in state revenues and by some
reductions in spending. The offsets in future years occur
because the reserve ratios in the state trust funds (the amount
of funds kept on hand to pay future benefits) are assumed to
remain in balance. Therefore, increased spending in the short
term would be offset by decreased spending or increased
revenues in the longer term. Thus, speeding up the transfer
would have no net cost over the 2002-2011 period.
Health Care Coverage for the Unemployed. Section 501 would
increase the amount of the Social Services Block Grant by $3
billion in 2002 to provide health care coverage for the
unemployed. The money would be allocated to states based on
their population. States could use the money to provide health
coverage for individuals (or family members of such
individuals) who qualify for unemployment benefits in calendar
year 2001 or later, and are not otherwise eligible for federal
health coverage.
CBO expects that it would take several months for states to
establish eligibility criteria and delivery mechanisms for the
new services. CBO projects that $1 billion would be spent in
2002 and $2 billion in 2003.
Pay-as-you-go-considerations: The net changes in outlays
and governmental receipts that are subject to pay-as-you-go
procedures are shown in the following table. For the purposes
of enforcing pay-as-you-go procedures, only the effects in the
current year and the succeeding four years are counted.
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
----------------------------------------------------------------------------------------------------
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in receipts................................ -69,665 -63,381 -49,191 -1,611 19,185 15,841 11,762 7,160 2,804 -1,043
Changes in outlays................................. 31,501 2,700 0 0 0 0 0 0 0 0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Impact on State, local, and tribal governments: H.R. 3090
contains no intergovernmental mandates as defined in the
Unfunded Mandates Reform Act (UMRA). Two of the provisions
reviewed by CBO would provide benefits to state governments.
Section 402 of the bill would accelerate transfers from
federal accounts in the unemployment trust fund to state
unemployment compensation accounts. States would be able to use
these additional funds, estimated to total $9.3 billion, for
the payment of regular unemployment benefits as established in
state laws or for the payment of new benefits established at
the option of the state through March 11, 2003.
Section 501 of the bill would provide $3 billion to states
through the Social Services Block Grant program to help
unemployed individuals acquire health care coverage. The funds
could not be used to supplant any other federal, state, or
local funds that are used for health care coverage. In order to
be eligible for assistance, an individual could not be eligible
for any other federal health coverage.
Impact on the private sector: CBO and JCT estimate that the
cost of the private-sector mandates in the bill would exceed
the annual threshold established by UMRA ($113 million in 2001,
adjusted for inflation) in each of the years that the mandates
would be effective.
Mental Health Parity. Section 310 would extend the
provisions of the Mental Health Parity Act of 1996, which
expired on September 30, 2001, for an additional two years.
That act prohibited group health plans that provide both
medical and surgical benefits and mental health benefits from
imposing aggregate lifetime limits or annual limits for
coverage of mental health benefits that are different from
those used for medical and surgical benefits. CBO estimates
that the direct cost of the private-sector mandate in section
310 would be $270 million in fiscal year 2002 and $400 million
in fiscal year 2003.
CBO estimates that the provision, if enacted, would
increase premiums for group health insurance by an average of
0.1 percent, before accounting for the responses of health
plans, employers, and workers to the higher premiums under the
bill. CBO assumes that 60 percent of the potential impact of
the mandate would be offset by behavioral responses, such as
reductions in the number of employers offering insurance to
their employees and in the number of employees enrolling in
employer-sponsored insurance, changes in the types of heath
plans that are offered, and reductions in the scope or
generosity of health insurance benefits. The remaining 40
percent of the potential increase in costs, or about 0.04
percent of group health insurance premiums, would occur in the
form of increased outlays for health insurance. Those costs
would be passed through to employees of private firms, reducing
both their taxable compensation and other fringe benefits. CBO
estimates that the resulting reduction in taxable income would
be $76 million in calendar year 2002 and $85 million in
calendar year 2003.
Those reductions in workers' taxable compensation would
lead to lower federal tax revenues. CBO estimates that, as a
result of the mental health parity provisions, federal tax
revenues would fall by $20 million in fiscal year 2002, by $30
million in 2003, and by $10 million in 2004 if H.R. 3090 were
enacted. Social Security payroll taxes, which are off-budget,
would account for about 30 percent of the total.
Other Mandates. Section 341 of the bill would provide that
income from the discharge of indebtedness of an S corporation
that is excluded from the S corporation's income is not taken
into account as an item of income by any shareholder and thus
does not increase the basis of any shareholder's stock in the
corporation.
Under Section 342, the experience method of accounting
would be available only for amounts to be received for the
performance of qualified services and for services provided by
certain small businesses.
JCT estimates that those private-sector mandates in the
bill would exceed the annual threshold established by UMRA
($113 million in 2001, adjusted for inflation) in each of the
years that the mandates would be effective.
Estimate prepared by: Federal Revenues: Erin Whitaker and
Alexis Ahlstrom. Transfer to State Unemployment Trust Funds:
Christi Hawley Sadoti. Health Care Coverage for the Unemployed:
Sheila Dacey. Impact on State, Local, and Tribal Governments:
Leo Lex. Impact on the Private Sector: Jen Bullard Bowman.
Estimate approved by: G. Thomas Woodward, Assistant
Director for Tax Analysis; Robert A. Sunshine, Assistant
Director for Budget Analysis.
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE
A. Committee Oversight Findings and Recommendations
With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives (relating to oversight findings),
the Committee advises that it was a result of the Committee's
oversight review of any conditions or circumstances that may
indicate the necessity or desirability of enacting new or
additional legislation within its jurisdiction that the
Committee determined that there is a need for tax legislation
and legislation relating to unemployment to aid in providing
economic security and recovery in light of the events of
September 11, 2001, and the current state of the U.S. economy.
B. Statement of General Performance Goals and Objectives
With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the performance goals and
objectives of that part of the tax provisions in this
legislation that authorize funding (i.e., providing
supplemental rebates and repeal of the corporate alternative
minimum tax) are to stimulate the economy and increase consumer
confidence by providing additional cash to taxpayers. In
addition, the provisions of the bill relating to transferring
Federal unemployment and health funds to the States will assist
unemployed workers and their dependents.
C. Constitutional Authority Statement
With respect to clause 3(d)(1) of the rule XIII of the
Rules of the House of Representatives (relating to
Constitutional Authority), the Committee states that the
Committee's action in reporting this bill is derived from
Article I of the Constitution, Section 8 (``The Congress shall
have Power To lay and collect Taxes, Duties, Imposts and
Excises * * * ``), and from the 16th Amendment to the
Constitution.
D. Information Relating to Unfunded Mandates
This information is provided in accordance with section 423
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
The Committee has determined that the following provisions
of the bill contain Federal private sector mandates: (1) limit
use of the non-accrual method of accounting; and (2) discharge
of indebtedness of an S corporation. The costs required to
comply with each of these private sector mandates generally are
no greater than the estimated budget effects of the provision
as reflected in Part IV.A., above. These provisions provide
revenue offsets for the economic stimulus provisions of the
bill and also improve the operation of the Federal income tax
system by resulting in a more accurate measurement of income in
those situations affected by the provision.
The Committee has determined that the bill does not impose
a Federal intergovernmental mandate on State, local, or tribal
governments.
E. Applicability of House Rule XXI 5(b)
Rule XXI 5(b) of the Rules of the House of Representatives
provides, in part, that ``A bill or joint resolution,
amendment, or conference report carrying a Federal income tax
rate increase may not be considered as passed or agreed to
unless so determined by a vote of not less than three-fifths of
the Members voting, a quorum being present.'' The Committee has
carefully reviewed the provisions of the bill, and states that
the provisions of the bill do not involve any Federal income
tax rate increases within the meaning of the rule.
F. Tax Complexity Analysis
The following tax complexity analysis is provided pursuant
to section 4022(b) of the Internal Revenue Service Reform and
Restructuring Act of 1998, which requires the staff of the
Joint Committee on Taxation (in consultation with the Internal
Revenue Service (``IRS'') and the Treasury Department) to
provide a complexity analysis of tax legislation reported by
the House Committee on Ways and Means, the Senate Committee on
Finance, or a Conference Report containing tax provisions. The
complexity analysis is required to report on the complexity and
administrative issues raised by provisions that directly or
indirectly amend the Internal Revenue Code and that have
widespread applicability to individuals or small businesses.
For each such provision identified by the staff of the Joint
Committee on Taxation, a summary description of the provision
is provided along with an estimate of the number and type of
affected taxpayers, and a discussion regarding the relevant
complexity and administrative issues.
Following the analysis of the staff of the Joint Committee
on Taxation are the comments of the IRS and the Treasury
Department regarding each of the provisions included in the
complexity analysis, including a discussion of the likely
effect on IRS forms and any expected impact on the IRS.
1. Special Depreciation Allowance for Certain Property (sec. 101 of the
bill)
Summary description of provision
The bill allows an additional first-year depreciation
deduction equal to 30 percent of the adjusted basis of certain
qualified property that is placed in service before January 1,
2005. The additional depreciation deduction is allowed for both
regular tax and alternative minimum tax purposes for the
taxable year in which the property is placed in service. The
basis of the property and the depreciation allowances in the
year of purchase and later years is appropriately adjusted to
reflect the additional first-year depreciation deduction. A
taxpayer can elect not to claim the additional first-year
depreciation for qualified property.
In general, property will qualify for the additional first-
year depreciation deduction if the property is (1) property to
which the modified accelerated cost recovery system (``MACRS'')
applies with a recovery period of 20 years or less except for
leasehold improvements, (2) water utility property as defined
in section 168(e)(5), or (3) computer software other than
computer software covered by section 197. In order to be
qualified property, the original use of the property must
commence with the taxpayer on or after September 11, 2001. A
special rule precludes the additional first-year depreciation
deduction for property that is required to be depreciated under
the alternative depreciation system of MACRS. In addition,
generally qualified property is required to be acquired by the
taxpayer after September 10, 2001 and before September 11,
2004.
Number of affected taxpayers
It is estimated that more than 10 percent of small
businesses will be affected by the provision.
Discussion
It is not anticipated that small businesses will have to
keep additional records due to this provision, nor will
additional regulatory guidance be necessary to implement this
provision. It is not anticipated that the provision will result
in an increase in disputes between small businesses and the
IRS. However, small businesses will have to perform additional
analysis to determine whether property qualifies for the
provision. In addition, for qualified property, small
businesses will be required to perform additional calculations
to determine the proper amount of allowable depreciation.
Complexity may also be increased because the provision is
temporary. For example, different tax treatment will apply for
identical equipment based on the acquisition and placed in
service date. Further, the Secretary of the Treasury is
expected to have to make appropriate revisions to the
applicable depreciation tax forms.
2. Accelerate the 25-Percent Rate Bracket to 2002 (sec. 201(a) of the
bill)
Summary description of provision
The Economic Growth and Tax Relief Reconciliation Act of
2001 reduced the prior-law 28-percent individual regular income
tax rate to 25 percent. This rate reduction is phased-in over
six years. The rate is 27 percent for taxable years beginning
in calendar years 2001-2003, 26 percent for taxable years
beginning in calendar years 2004-2005, and 25 percent for
taxable years beginning in calendar years 2006 and thereafter.
The bill accelerates this reduction. Therefore, the 25-percent
rate is effective for taxable years beginning in calendar years
2002 and thereafter.
Number of affected taxpayers
It is estimated that the provision will affect
approximately 37 million individual tax returns per year.
Discussion
It is not anticipated that individuals will need to keep
additional records due to this provision. It should not result
in an increase in disputes with the IRS, nor will regulatory
guidance be necessary to implement this provision. In addition,
the provision should not increase the tax preparation costs for
most individuals.
3. Simplify Individual Capital Gains Rates (sec. 202 of the bill)
Summary description of provision
The provision repeals the special rules for certain gain
from property held more than five years and repeals the mark to
market election for certain property held on January 1, 2001.
Thus, the present-law eight and 18 percent rates on adjusted
net capital gains would apply to assets held more than one
year.
Number and type of affected taxpayers
It is estimated that reducing the tax rates on capital
gains will affect over 20 million taxpayers per year. It is
estimated that, of this number, over ten million individual
income tax returns have incomes of less than $75,000.
Discussion
It is not anticipated that individuals will need to keep
additional records due to this provision, because the provision
is only a rate change. Additional regulatory guidance should
not be necessary to implement this provision. The provision
should not increase the tax preparation cost of individuals
using a tax preparation service, except possibly for the year
2001 when both the eight-percent and ten-percent rate schedules
will be in effect for certain taxpayers. After 2001, the
provision should result in simplification in computing the tax
on capital gains (e.g. the tax form for computation of capital
gains will be shortened and the calculation simplified). It is
anticipated that eliminating the mark-to-market election will
also reduce the record keeping and reporting burden on
taxpayers. It is also anticipated that it will ease the
administrative burden on the IRS.
4. Supplemental Rebate (sec. 401 of the bill)
Summary description of provision
The bill provides a supplemental rebate. Individuals who
filed income tax returns for 2000 (regardless of whether they
had any income tax liability or any payroll tax liability) are
eligible for this supplemental rebate. The amount of the rebate
is calculated in the following manner: taxpayers are eligible
for the maximum rebate amount for their filing status ($300
single or married filing separately, $500 head of household,
$600 joint filers) minus the amount (if any) of any previous
rebate check issued.
Number of affected taxpayers
It is estimated that the provision will affect
approximately 38 million individual tax returns per year.
Discussion
It is not anticipated that individuals will need to keep
additional records due to this provision. In addition, the
provision should not increase the tax preparation costs for
most individuals. It should not result in an increase in
disputes with the IRS, nor will regulatory guidance be
necessary to implement this provision. It may, however,
increase the number of questions that taxpayers ask the IRS,
such as when taxpayers will receive their checks. This
increased volume of questions could have an adverse impact on
other elements of IRS' operations, such as the levels of
taxpayer service. The IRS is expected to send notices to
taxpayers who will be receiving supplemental rebates, which may
reduce the number of questions from taxpayers.
The IRS will have a very short period of time in which to
program its computers, test those programs, determine who
should receive a supplemental rebate and in what amount, notify
those taxpayers, and authorize the issuance of the supplemental
rebates.\36\ This may be difficult to do. In addition, doing
these tasks may have unforeseen adverse consequences for other
IRS responsibilities, such as the 2002 filing season.
---------------------------------------------------------------------------
\36\ The Financial Management Service of the Department of the
Treasury, not the Internal Revenue Service, prints and mails the
checks.
Department of the Treasury,
Interal Revenue Service,
Washington, DC, October 17, 2001.
Ms. Lindy L. Paull,
Chief of Staff, Joint Committee on Taxation,
Washington, DC
Dear Ms. Paull: Enclosed are the combined comments of the
Internal Revenue Service and the Treasury Department on the
four provisions from the House Committee on Ways and Means
markup of the ``Economic Security and Recovery Act of 2001,''
that you identified for complexity analysis in your letter of
October 12, 2001.
Our comments on provisions other than the supplemental
rebate are based on the description of those provisions in JCX-
69-01, Joint Committee on Taxation, Description of the Economic
Security and Recovery Act of 2001, as introduced, October 11,
2001, and the statutory language contained in H.R. 3090, as
modified by the Amendment in the Nature of a Substitute Offered
by Mr. Thomas. Our description and comments on the supplemental
rebate provision are based solely on the description of that
provision provided in the attachment to your letter of October
12.
Due to the short turnaround time, our comments are
provisional and subject to change upon a more complete and in-
depth analysis of the provisions.
Sincerely,
Charles O. Rossotti.
Enclosure.
Complexity Analysis of Provisions From the ``Economic Security and
Recovery Act of 2001''
Special Depreciation Allowance for Certain Property
Provision: The proposal would allow an additional first-
year depreciation deduction of 30 percent, for both regular and
AMT property acquired after September 10, 2001 and before
September 11, 2004, and placed in service before January 1,
2005. The basis of the property and depreciation in subsequent
years would be appropriately adjusted to reflect the additional
first-year depreciation. Taxpayers would be allowed to elect
out of the additional first-year depreciation.
IRS and Treasury comments
The special depreciation allowance would require
changes to Form 4562 for 2001. One line would be added to Part
I of the form. In addition, changes to the instructions for
Form 2106 and 4562 would be necessary to explain the new rules.
Taxpayers would be required to keep records of the amount of
additional depreciation claimed on each asset in order to
figure depreciation in later years.
Supplemental Rebate
Provision: A supplemental rebate would be available for
individuals who filed income tax returns for 2000, even if they
did not have any income tax liability, payroll tax liability,
or wages for 2000. The amount of the rebate would be calculated
in the following manner: taxpayers would be eligible for the
maximum rebate amount for their filing status ($300 single or
married filing separately, $500 head of household, $600 joint
filers) minus the amount (if any) of any previous rebate check
issued. Thus, if a single filer received $100 earlier this year
as his or her rate reduction credit, he or she would receive an
additional $200. Those who earlier received the full amounts
for their filing status would not receive any supplemental
rebate. Dependents and nonresident aliens would not be eligible
for the supplemental rebates.
IRS and Treasury comments
A mechanism for delivering the supplemental credit
would have to be developed.
Providing rebate checks to affected taxpayers
before the end of 2001 may not be a viable delivery option.
In order to compute, account for, control, and
produce rebate checks, certain complex computer programs and
systems must be modified, tested, integrated with existing
programs, and put into place, IRS would also need to modify the
notice programs to reflect these new calculations and
coordinate the issuance of checks with FMS.
Revisions of this kind late in the calendar year
always create extremely high risk of major errors in processing
taxpayer returns. The problem is especially severe this year
because significant technical and management resources were
diverted from our development of programs for the 2002 filing
season to accommodate the advance payments provided by the
Economic Growth and Tax Relief Reconciliation Act of 2001, and
the delayed due dates for certain taxpayers affected by the
terrorist attacks of September 11, 2001. Currently, every
available technical and management resource is operating at
maximum capacity to ensure that programming for the 2002 filing
season is completed timely. Attempting to implement programs to
issue a ``supplemental rebate'' by December 31, 2001 would
create serious risks of delay in the start of the 2002 filing
season.
Another approach would be to issue the
supplemental rebate during the processing of an individual's
2001 tax return. This could be done by computing the additional
rebate on the 2001 return and adjusting the 2001 balance due or
refund to reflect the additional amount.
Accelerate the 25-percent Rate Bracket to 2002
Provision: The 25-percent rate (provided by the Economic
Growth and Tax Relief Reconciliation Act of 2001) would be
effective for taxable years beginning in calendar years 2002
and thereafter.
IRS and Treasury comments
This tax rate change would be incorporated in the
tax tables, tax rate schedules, withholding tables, and
withholding rate schedules for 2002 during IRS' annual update
of these items. Changes to the tax rates shown in the
instructions for Forms 1040, 1040A, 1040EZ, and 1040NR, and on
Forms 1040-ES and W-4V would be required for 2002. No new forms
would be required. Programming changes to the tax computation
process would be required to reflect the new rates.
Simplify Individual Capital Gains Rates
Provision: The proposal would reduce the 10 and 20 percent
rates on adjusted net capital gain to 8 and 18 percent rates,
respectively. (The special rules allowing reduced rates for
property held for more than 5 years, and related election to
recognize certain gain on property held on January 1, 2001
would be repealed because they are no longer necessary.) The
reduced capital gain rates would apply, generally, to capital
assets sold or exchanged on or after October 12, 2001.
IRS and Treasury comments
tax forms
Applying the reduced rates to gains after October
11, 2001 would require the following major changes to the 2001
Schedule D (Form 1040) and the worksheets in its Instructions
and the instructions for Forms 1040 and 1040A:
In Part I of Schedule D, a new column with 5 lines
for short-term gain or loss after October 11, 2001 would be
added.
In Part II, column (g) would be redesignated for
gain or loss after October 11, 2001, and one entry space in
that column would be removed.
A new 8-line worksheet would be added to the
Schedule D Instructions to determine 28 percent rate gain or
loss (previously figured in column (g), Part II).
In Part IV, 4 lines would be added to the
computation of the amount taxed at 8 percent, and 8 lines would
be added to figure the amount taxed at 18 percent and 20
percent. One line would be removed because its calculation
would be done in the new worksheet for 28 percent rate gain or
loss. The same changes (a net increase of 11 lines) would also
be required for the new Schedule D Tax Worksheet in the
Instructions for Schedule D.
The two 15-line Capital Gain Tax Worksheets in the
Instructions for Forms 1040 and 1040A could not be used and
would have to be deleted. Most taxpayers whose only capital
gains are capital gain distributions can now figure their tax
on that worksheet instead of completing Schedule D. This change
would require approximately 2 million taxpayers who file Form
1040A to instead file Form 1040 and complete Schedule D. Also,
approximately 6 million Form 1040 filers would have to file
Schedule D instead of using the worksheet. IRS could not allow
taxpayers to use the worksheets because IRS would not have the
information regarding gains and losses after October 11, 2001
necessary to math-verify the taxpayer's tax computation. IRS
can only get this information by requiring the taxpayer to file
Schedule D. IRS would also have to delete the checkbox from
Form 1040 that indicates that the taxpayer had only capital
gain distributions and used the Capital Gain Tax Worksheet
instead of filing Schedule D.
The October 12, 2001 effective date would also
require conforming changes for the following 2001 forms:
Schedule D-1 (Form 1040); Schedules D for Forms 1041, 1065, and
1120S; and Forms 2439, 4797, 6251, and 6781. In addition, the
2001 Schedules K-1 for Forms 1041, 1065, and 1120S would need
to be revised to add lines for short-term, and section 1231
gain or loss after October 11, 2001. Finally, the 2001 Forms
1099-DIV and 1099-B should be revised to reflect the change.
However, because they have already been printed and
distributed, the IRS would have to issue an announcement
explaining how the filers of those forms must report gain or
loss after October 11, 2001 to the recipients on a substitute
or separate statement. No new forms would be required.
The added complexity of the 2001 Schedule D would
lead to increased taxpayer error. During processing, these
returns would have to be sent to Error Resolution for
correction. This could cause additional delay in return
processing and in the issuance of refunds. It also would
increase IRS processing costs.
Generally, the above changes apply only to the
2001 forms and instructions. The forms and instructions for
2002 and later years, including 2006, would be simpler than
they would be absent this legislation. The four new lines in
Part IV necessary to figure the amount taxed at 8 percent for
2001 (absent this legislation), as well as the new 7-line
Qualified 5-Year Gain Worksheet, would no longer be necessary.
Also, IRS would not have to add similar additional lines and
another worksheet in 2006 to accommodate the 18 percent tax
rate on post-2000 qualified 5-year gain.
Fiscal year 2000-2001 taxpayers with a taxable
year ending after October 11, 2001 may also be affected. These
taxpayers file 2000 tax forms, which are already in print. The
IRS would have to issue an announcement similar to Announcement
97-109, 1997-45 I.R.B. 12, which was issued to reflect new
reporting requirements mandated by the 1997 capital gains tax
rate changes. The announcement would explain how taxpayers must
complete their 2000 forms to reflect the reduced rates for net
capital gain after October 11, 2001. The affected 2000 forms
include Schedules D for Forms 1040 and 1041 and Schedules K-1
for Forms 1041, 1065, and 1120S.
PROGRAMMING AND PROCESSING
The changes needed to the 2001 forms caused by the
October 12, 2001 effective date would require extensive
revision of computer programs and record layouts for processing
those returns. Revisions of this kind late in the calendar year
always pose extreme difficulties. The problem is especially
severe this year because of the additional resources required
to implement the Economic Growth and Tax Relief Reconciliation
Act of 2001 (enacted in June 2001), conforming changes to that
Act approved by the leadership of the tax writing committees in
September 2001, and the delayed due dates for certain taxpayers
affected by the terrorist acts on September 11, 2001.
The IRS is currently working on these programming
changes in preparation for the 2002 filing season. These
changes are scheduled for completion by November 19, 2001. By
mid-November 2001, all systems need to be frozen in order to
allow for final end-to-end testing of IRS systems. The IRS also
must work with independent vendors of tax preparation software
to test their systems so that it can correctly receive
electronically filed returns beginning shortly after January 1,
2002.
If the October 12, 2001 effective date is
retained, the IRS would be forced to complete testing of
computer programs for processing during the 2002 filing season
using existing law and would be unable to process 2001 returns
reporting capital gains under the new law until later in the
filing season, possibly not until March 2002. At a minimum,
this means that taxpayers (including taxpayers who file
electronically) who have capital gains and who are due refunds
would not be able to receive their refunds until late in the
filing season. In addition, since the over 28 million returns
that include Schedule D would not be processed until late in
the season during the peak filing period, processing of some
other returns might be delayed. With delays for so many
returns, the IRS would expect an increased number of taxpayer
phone calls concerning, refunds, thereby reducing the
opportunity for other taxpayers to get assistance.
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, existing law in which no change
is proposed is shown in roman):
INTERNAL REVENUE CODE OF 1986
* * * * * * *
Subtitle A--Income Taxes
* * * * * * *
CHAPTER 1--NORMAL TAXES AND SURTAXES
* * * * * * *
Subchapter A--Determination of Tax Liability
* * * * * * *
Part I. Tax on individuals.
* * * * * * *
[Part VII. Environmental tax.]
PART I--TAX ON INDIVIDUALS
* * * * * * *
SEC. 1. TAX IMPOSED.
(a) * * *
* * * * * * *
(h) Maximum Capital Gains Rate.--
(1) In general.--If a taxpayer has a net capital gain
for any taxable year, the tax imposed by this section
for such taxable year shall not exceed the sum of--
(A) * * *
(B) [10] 8 percent of so much of the adjusted
net capital gain (or, if less, taxable income)
as does not exceed the excess (if any) of--
(i) the amount of taxable income
which would (without regard to this
paragraph) be taxed at a rate below 25
percent, over
(ii) the taxable income reduced by
the adjusted net capital gain;
* * * * * * *
(C) [20] 18 percent of the adjusted net
capital gain (or, if less, taxable income) in
excess of the amount on which a tax is
determined under subparagraph (B);
* * * * * * *
[(2) Reduced capital gain rates for qualified 5-year
gain.--
[(A) Reduction in 10-percent rate.--In the
case of any taxable year beginning after
December 31, 2000, the rate under paragraph
(1)(B) shall be 8 percent with respect to so
much of the amount to which the 10-percent rate
would otherwise apply as does not exceed
qualified 5-year gain, and 10 percent with
respect to the remainder of such amount.
[(B) Reduction in 20-percent rate.--The rate
under paragraph (1)(C) shall be 18 percent with
respect to so much of the amount to which the
20-percent rate would otherwise apply as does
not exceed the lesser of--
[(i) the excess of qualified 5-year
gain over the amount of such gain taken
into account under subparagraph (A) of
this paragraph; or
[(ii) the amount of qualified 5-year
gain (determined by taking into account
only property the holding period for
which begins after December 31, 2000),
and 20 percent with respect to the
remainder of such amount. For purposes
of determining under the preceding
sentence whether the holding period of
property begins after December 31,
2000, the holding period of property
acquired pursuant to the exercise of an
option (or other right or obligation to
acquire property) shall include the
period such option (or other right or
obligation) was held.]
[(3)] (2) Net capital gain taken into account as
investment income.--For purposes of this subsection,
the net capital gain for any taxable year shall be
reduced (but not below zero) by the amount which the
taxpayer takes into account as investment income under
section 163(d)(4)(B)(iii).
[(4)] (3) Adjusted net capital gain.--For purposes of
this subsection, the term ``adjusted net capital gain''
means net capital gain reduced (but not below zero) by
the sum of--
(A) unrecaptured section 1250 gain; and
(B) 28-percent rate gain.
[(5)] (4) 28-Percent rate gain.--For purposes of this
subsection, the term ``28-percent rate gain'' means the
excess (if any) of--
(A) the sum of--
(i) collectibles gain; and
* * * * * * *
[(6)] (5) Collectibles gain and loss.--For purposes
of this subsection--
(A) * * *
* * * * * * *
[(7)] (6) Unrecaptured section 1250 gain.--For
purposes of this subsection--
(A) * * *
* * * * * * *
[(8)] (7) Section 1202 gain.--For purposes of this
subsection, the term ``section 1202 gain'' means the
excess of--
(A) * * *
* * * * * * *
[(9) Qualified 5-year gain.--For purposes of this
subsection, the term ``qualified 5-year gain'' means
the aggregate long-term capital gain from property held
for more than 5 years. The determination under the
preceding sentence shall be made without regard to
collectibles gain, gain described in paragraph
(7)(A)(i), and section 1202 gain.]
[(10)] (8) Coordination with recapture of net
ordinary losses under section 1231.--If any amount is
treated as ordinary income under section 1231(c), such
amount shall be allocated among the separate categories
of net section 1231 gain (as defined in section
1231(c)(3)) in such manner as the Secretary may by
forms or regulations prescribe.
[(11)] (9) Regulations.--The Secretary may prescribe
such regulations as are appropriate (including
regulations requiring reporting) to apply this
subsection in the case of sales and exchanges by pass-
thru entities and of interests in such entities.
[(12)] (10) Pass-thru entity defined.--For purposes
of this subsection, the term ``pass-thru entity''
means--
(A) * * *
* * * * * * *
(i) Rate Reductions After 2000.--
(1) * * *
(2) Reductions in rates after june 30, 2001.--In the
case of taxable years beginning in a calendar year
after 2000, the corresponding percentage specified for
such calendar year in the following table shall be
substituted for the otherwise applicable tax rate in
the tables under subsections (a), (b), (c), (d), and
(e).
------------------------------------------------------------------------
In the case of The corresponding percentages shall be
taxable years substituted for the following
beginning percentages:
during calendar ------------------------------------------
year: 28% 31% 36% 39.6%
------------------------------------------------------------------------
2001........... 27.5% 30.5% 35.5% 39.1%
2002 and 2003.. [27.0%] 25.0% 30.0% 35.0% 38.6%
2004 and 2005.. [26.0%] 25.0% 29.0% 34.0% 37.6%
2006 and 25.0% 28.0% 33.0% 35.0%
thereafter.
------------------------------------------------------------------------
* * * * * * *
PART II--TAX ON CORPORATIONS
* * * * * * *
SEC. 11. TAX IMPOSED.
(a) * * *
* * * * * * *
(d) Foreign Corporations.--In the case of a foreign
corporation, [the taxes imposed by subsection (a) and section
55] the tax imposed by subsection (a) shall apply only as
provided by section 882.
SEC. 12. CROSS REFERENCES RELATING TO TAX ON CORPORATIONS.
(1) * * *
* * * * * * *
[(7) For alternative minimum tax, see section 55.]
* * * * * * *
PART IV--CREDIT AGAINST TAX
* * * * * * *
Subpart A--Nonrefundable Personal Credits
* * * * * * *
SEC. 24. CHILD TAX CREDIT.
(a) * * *
* * * * * * *
(d) Portion of Credit Refundable.--
(1) In general.--The aggregate credits allowed to a
taxpayer under subpart C shall be increased by the
lesser of--
(A) * * *
(B) the amount by which the [amount of credit
allowed by this section] aggregate amount of
credits allowed by this subpart (determined
without regard to this subsection) would
increase if the limitation imposed by section
26(a) were increased by the greater of--
(i) * * *
* * * * * * *
SEC. 26. LIMITATION BASED ON TAX LIABILITY; DEFINITION OF TAX
LIABILITY.
(a) Limitation Based on Amount of Tax.--
(1) * * *
(2) Special [rule for 2000 and 2001.--] rule for
2000, 2001, 2002, and 2003.--For purposes of any
taxable year beginning [during 2000 or 2001,] during
2000, 2001, 2002, or 2003, the aggregate amount of
credits allowed by this subpart for the taxable year
shall not exceed the sum of--
(A) * * *
* * * * * * *
(b) Regular Tax Liability.--For purposes of this part--
(1) * * *
(2) Exception for certain taxes.--For purposes of
paragraph (1), any tax imposed by any of the following
provisions shall not be treated as tax imposed by this
chapter:
(A) section 55 (relating to minimum tax),
[(B) section 59A (relating to environmental
tax),]
[(C)] (B) subsection (m)(5)(B), (q), (t), or
(v) of section 72 (relating to additional taxes
on certain distributions),
[(D)] (C) section 143(m) (relating to
recapture of proration of Federal subsidy from
use of mortgage bonds and mortgage credit
certificates),
[(E)] (D) section 530(d)(3) (relating to
additional tax on certain distributions from
education individual retirement accounts),
[(F)] (E) section 531 (relating to
accumulated earnings tax),
[(G)] (F) section 541 (relating to personal
holding company tax),
[(H)] (G) section 1351(d)(1) (relating to
recoveries of foreign expropriation losses),
[(I)] (H) section 1374 (relating to tax on
certain built-in gains of S corporations),
[(J)] (I) section 1375 (relating to tax
imposed when passive investment income of
corporation having subchapter C earnings and
profits exceeds 25 percent of gross receipts),
[(K)] (J) subparagraph (A) of section
7518(g)(6) (relating to nonqualified
withdrawals from capital construction funds
taxed at highest marginal rate),
[(L)] (K) sections 871(a) and 881 (relating
to certain income of nonresident aliens and
foreign corporations),
[(M)] (L) section 860E(e) (relating to taxes
with respect to certain residual interests),
[(N)] (M) section 884 (relating to branch
profits tax),
[(O)] (N) sections 453(l)(3) and 453A(c)
(relating to interest on certain deferred tax
liabilities),
[(P)] (O) section 860K (relating to treatment
of transfers of high-yield interests to
disqualified holders), and,
[(Q)] (P) section 220(f)(4) (relating to
additional tax on Archer MSA distributions not
used for qualified medical expenses).
* * * * * * *
Subpart B--Other Credits
* * * * * * *
SEC. 29. CREDIT FOR PRODUCING FUEL FROM A NONCONVENTIONAL SOURCE.
(a) * * *
(b) Limitations and Adjustments.--
(1) * * *
* * * * * * *
[(6) Application with other credits.--The credit
allowed by subsection (a) for any taxable year shall
not exceed the excess (if any) of--
[(A) the regular tax for the taxable year
reduced by the sum of the credits allowable
under subpart A and section 27, over
[(B) the tentative minimum tax for the
taxable year.]
(6) Application with other credits.--The credit
allowed by subsection (a) for any taxable year shall
not exceed the excess (if any) of the regular tax for
the taxable year reduced by the sum of the credits
allowable under subpart A and section 27. In the case
of a taxpayer other than a corporation, such excess
shall be further reduced (but not below zero) by the
tentative minimum tax for the taxable year.
* * * * * * *
SEC. 30. CREDIT FOR QUALIFIED ELECTRIC VEHICLES.
(a) * * *
(b) Limitations.--
(1) * * *
(2) Phaseout.--In the case of any qualified electric
vehicle placed in service after December 31, [2001]
2003, the credit otherwise allowable under subsection
(a) (determined after the application of paragraph (1))
shall be reduced by--
(A) 25 percent in the case of property placed
in service in calendar year [2002] 2004,
(B) 50 percent in the case of property placed
in service in calendar year [2003] 2005, and
(C) 75 percent in the case of property placed
in service in calendar year [2004] 2006.
[(3) Application with other credits.--The credit
allowed by subsection (a) for any taxable year shall
not exceed the excess (if any) of--
[(A) the regular tax for the taxable year
reduced by the sum of the credits allowable
under subpart A and sections 27 and 29, over--
[(B) the tentative minimum tax for the
taxable year.]
(3) Application with other credits.--The credit
allowed by subsection (a) for any taxable year shall
not exceed the excess (if any) of the regular tax for
the taxable year reduced by the sum of the credits
allowable under subpart A and sections 27 and 29. In
the case of a taxpayer other than a corporation, such
excess shall be further reduced (but not below zero) by
the tentative minimum tax for the taxable year.
* * * * * * *
(e) Termination.--This section shall not apply to any
property placed in service after December 31, [2004] 2006.
SEC. 30A. PUERTO RICO ECONOMIC ACTIVITY CREDIT.
(a) * * *
* * * * * * *
(c) Credit Not Allowed Against Certain Taxes.--The credit
provided by subsection (a) shall not be allowed against the tax
imposed by--
[(1) section 59A (relating to environmental tax),]
[(2)] (1) section 531 (relating to the tax on
accumulated earnings),
[(3)] (2) section 541 (relating to personal holding
company tax), or
[(4)] (3) section 1351 (relating to recoveries of
foreign expropriation losses).
* * * * * * *
Subpart D--Business Related Credits
* * * * * * *
SEC. 38. GENERAL BUSINESS CREDIT.
(a) * * *
* * * * * * *
(c) Limitation Based on Amount of Tax.--
[(1) In general.--The credit allowed under subsection
(a) for any taxable year shall not exceed the excess
(if any) of the taxpayer's net income tax over the
greater of--
[(A) the tentative minimum tax for the
taxable year, or
[(B) 25 percent of so much of the taxpayer's
net regular tax liability as exceeds $25,000.
For purposes of the preceding sentence, the term ``net
income tax'' means the sum of the regular tax liability
and the tax imposed by section 55, reduced by the
credits allowable under subparts A and B of this part,
and the term ``net regular tax liability'' means the
regular tax liability reduced by the sum of the credits
allowable under subparts A and B of this part.]
(1) In general.--
(A) Corporations.--In the case of a
corporation, the credit allowed under
subsection (a) for any taxable year shall not
exceed the excess (if any) of the taxpayer's
net income tax over 25 percent of so much of
the taxpayer's net regular tax liability as
exceeds $25,000.
(B) Taxpayers other than corporations.--In
the case of a taxpayer other than a
corporation, the credit allowed under
subsection (a) for any taxable year shall not
exceed the excess (if any) of the taxpayer's
net income tax over the greater of--
(i) the tentative minimum tax for the
taxable year, or
(ii) 25 percent of so much of the
taxpayer's net regular tax liability as
exceeds $25,000.
(C) Definitions.--For purposes of this
paragraph--
(i) the term ``net income tax'' means
the sum of the regular tax liability
and the tax imposed by section 55,
reduced by the credits allowable under
subparts A and B of this part, and
(ii) the term ``net regular tax
liability'' means the regular tax
liability reduced by the sum of the
credits allowable under subparts A and
B of this part.
(2) Empowerment zone employment credit may offset 25
percent of minimum tax.--
(A) In general.--In the case of the
empowerment zone employment credit--
(i) this section and section 39 shall
be applied separately with respect to
such credit, and
[(ii) for purposes of applying
paragraph (1) to such credit
[(I) 75 percent of the
tentative minimum tax shall be
substituted for the tentative
minimum tax under subparagraph
(A) thereof, and
[(II) the limitation under
paragraph (1) (as modified by
subclause (I)) shall be reduced
by the credit allowed under
subsection (a) for the taxable
year (other than the
empowerment zone employment
credit).]
(ii) for purposes of applying
paragraph (1) to such credit--
(I) the applicable limitation
under paragraph (1) (as
modified by subclause (II) in
the case of a taxpayer other
than a corporation) shall be
reduced by the credit allowed
under subsection (a) for the
taxable year (other than the
empowerment zone employment
credit), and
(II) in the case of a
taxpayer other than a
corporation, 75 percent of the
tentative minimum tax shall be
substituted for the tentative
minimum tax under subparagraph
(B)(i) thereof.
* * * * * * *
(3) Special rules.--
(A) Married individuals.--In the case of a
husband or wife who files a separate return,
the amount specified under [subparagraph (B)
of] paragraph (1) shall be $12,500 in lieu of
$25,000. This subparagraph shall not apply if
the spouse of the taxpayer has no business
credit carryforward or carryback to, and has no
current year business credit for, the taxable
year of such spouse which ends within or with
the taxpayer's taxable year.
(B) Controlled groups.--In the case of a
controlled group, the $25,000 amount specified
under [subparagraph (B) of] paragraph (1) shall
be reduced for each component member of such
group by apportioning $25,000 among the
component members of such group in such manner
as the Secretary shall by regulations
prescribe. For purposes of the preceding
sentence, the term ``controlled group'' has the
meaning given to such term by section 1563(a).
(C) Limitations with respect to certain
persons.--In the case of a person described in
subparagraph (A) or (B) of section 46(e)(1) (as
in effect on the day before the date of the
enactment of the Revenue Reconciliation Act of
1990), the $25,000 amount specified under
[subparagraph (B) of] paragraph (1) shall equal
such person's ratable share (as determined
under section 46(e)(2) (as so in effect) of
such amount.
(D) Estates and trusts.--In the case of an
estate or trust, the $25,000 amount specified
under [subparagraph (B) of] paragraph (1) shall
be reduced to an amount which bears the same
ratio to $25,000 as the portion of the income
of the estate or trust which is not allocated
to beneficiaries bears to the total income of
the estate or trust.
* * * * * * *
SEC. 45. ELECTRICITY PRODUCED FROM CERTAIN RENEWABLE RESOURCES.
(a) * * *
* * * * * * *
(c) Definitions.--For purposes of this section--
(1) * * *
* * * * * * *
(3) Qualified facility.--
(A) Wind facility.--In the case of a facility
using wind to produce electricity, the term
``qualified facility'' means any facility owned
by the taxpayer which is originally placed in
service after December 31, 1993, and before
January 1, [2002] 2004.
(B) Closed-loop biomass facility.--In the
case of a facility using closed-loop biomass to
produce electricity, the term ``qualified
facility'' means any facility owned by the
taxpayer which is originally placed in service
after December 31, 1992, and before January 1,
[2002] 2004.
(C) Poultry waste facility.--In the case of a
facility using poultry waste to produce
electricity, the term ``qualified facility''
means any facility of the taxpayer which is
originally placed in service after December 31,
1999, and before January 1, [2002] 2004.
* * * * * * *
Subpart F--Rules for Computing Work Opportunity Credit
* * * * * * *
SEC. 51. AMOUNT OF CREDIT.
(a) * * *
* * * * * * *
(c) Wages Defined.--For purposes of this subpart--
(1) * * *
* * * * * * *
(4) Termination.--The term ``wages'' shall not
include any amount paid or incurred to an individual
who begins work for the employer--
(A) after December 31, 1994, and before
October 1, 1996, or
(B) after December 31, [2001] 2003.
* * * * * * *
SEC. 51A. TEMPORARY INCENTIVES FOR EMPLOYING LONG-TERM FAMILY
ASSISTANCE RECIPIENTS.
(a) * * *
* * * * * * *
(f) Termination.--This section shall not apply to individuals
who begin work for the employer after December 31, [2001] 2003.
* * * * * * *
Subpart G--Credit Against Regular Tax for Prior Year Minimum Tax
Liability
* * * * * * *
SEC. 53. CREDIT FOR PRIOR YEAR MINIMUM TAX LIABILITY.
(a) * * *
* * * * * * *
(d) Definitions.--For purposes of this section--
(1) Net minimum tax
(A) * * *
(B) Credit not allowed for exclusion
preferences.--
(i) * * *
(ii) Specified items.--The following
are specified in this clause--
(I) the adjustments provided
for in subsection [(b)(1)]
(a)(8) of section 56, and
* * * * * * *
[(iv) Credit allowable for exclusion
preferences of corporations.--In the
case of a corporation--
[(I) the preceding provisions
of this subparagraph shall not
apply, and
[(II) the adjusted net
minimum tax for any taxable
year is the amount of the net
minimum tax for such year
increased in the manner
provided in clause (iii).]
* * * * * * *
PART VI--MINIMUM TAX FOR TAX PREFERENCES
[Sec. 55. Alternative minimum tax imposed.]
Sec. 55. Alternative minimum tax for taxpayers other than
corporations.
* * * * * * *
[SEC. 55. ALTERNATIVE MINIMUM TAX IMPOSED.
[(a) General Rule.--There is hereby imposed (in addition to
any other tax imposed by this subtitle) a tax equal to the
excess (if any) of--
[(1) the tentative minimum tax for the taxable year,
over
[(2) the regular tax for the taxable year.
[(b) Tentative Minimum Tax.--For purposes of this part--
[(1) Amount of tentative tax.--
[(A) Noncorporate taxpayers.--
[(i) In general.--In the case of a
taxpayer other than a corporation, the
tentative minimum tax for the taxable
year is the sum of--
[(I) 26 percent of so much of
the taxable excess as does not
exceed $175,000, plus
[(II) 28 percent of so much
of the taxable excess as
exceeds $175,000.
The amount determined under the
preceding sentence shall be reduced by
the alternative minimum tax foreign tax
credit for the taxable year.
[(ii) Taxable excess.--For purposes
of this subsection, the term ``taxable
excess'' means so much of the
alternative minimum taxable income for
the taxable year as exceeds the
exemption amount.
[(iii) Married individual filing
separate return.--In the case of a
married individual filing a separate
return, clause (i) shall be applied by
substituting ``$87,500'' for
``$175,000'' each place it appears. For
purposes of the preceding sentence,
marital status shall be determined
under section 7703.
[(B) Corporations.--In the case of a
corporation, the tentative minimum tax for the
taxable year is--
[(i) 20 percent of so much of the
alternative minimum taxable income for
the taxable year as exceeds the
exemption amount, reduced by
[(ii) the alternative minimum tax
foreign tax credit for the taxable
year.]
SEC. 55. ALTERNATIVE MINIMUM TAX FOR TAXPAYERS OTHER THAN CORPORATIONS.
(a) In General.--In the case of a taxpayer other than a
corporation, there is hereby imposed (in addition to any other
tax imposed by this subtitle) a tax equal to the excess (if
any) of--
(1) the tentative minimum tax for the taxable year,
over
(2) the regular tax for the taxable year.
(b) Tentative Minimum Tax.--For purposes of this part--
(1) Amount of tentative tax.--
(A) In general.--The tentative minimum tax
for the taxable year is the sum of--
(i) 26 percent of so much of the
taxable excess as does not exceed
$175,000, plus
(ii) 28 percent of so much of the
taxable excess as exceeds $175,000.
The amount determined under the preceding
sentence shall be reduced by the alternative
minimum tax foreign tax credit for the taxable
year.
(B) Taxable excess.--For purposes of this
subsection, the term ``taxable excess'' means
so much of the alternative minimum taxable
income for the taxable year as exceeds the
exemption amount.
(C) Married individual filing separate
return.--In the case of a married individual
filing a separate return, clause (i) shall be
applied by substituting ``$87,500'' for
``$175,000'' each place it appears. For
purposes of the preceding sentence, marital
status shall be determined under section 7703.
* * * * * * *
(3) Maximum of tax on net capital gain of
noncorporate taxpayers.--The amount determined under
the first sentence of paragraph [(1)(A)(i)] (1)(A)
shall not exceed the sum of--
(A) * * *
(B) [10] 8 percent of so much of the adjusted
net capital gain (or, if less, taxable excess)
as does not exceed the amount on which a tax is
determined under section 1(h)(1)(B), plus
(C) [20] 18 percent of the adjusted net
capital gain (or, if less, taxable excess) in
excess of the amount on which tax is determined
under subparagraph (B), plus
[In the case of taxable years beginning after December
31, 2000, rules similar to the rules of section 1(h)(2)
shall apply for purposes of subparagraphs (B) and (C).]
Terms used in this paragraph which are also used in
section 1(h) shall have the respective meanings given
such terms by section 1(h) but computed with the
adjustments under this part.
(c) Regular Tax.--
(1) In general.--For purposes of this section, the
term ``regular tax'' means the regular tax liability
for the taxable year (as defined in section 26(b))
reduced by the foreign tax credit allowable under
section 27(a)[, the section 936 credit allowable under
section 27(b), and the Puerto Rico economic activity
credit under section 30A]. Such term shall not include
any increase in tax under section 49(b) or 50(a) or
subsection (j) or (k) of section 42.
* * * * * * *
(d) Exemption Amount.--For purposes of this section--
(1) Exemption amount [for taxpayers other than
corporations.--In the case of a taxpayer other than a
corporation, the].--The term ``exemption amount''
means--
(A) $45,000 [($49,000 in the case of taxable
years beginning in 2001, 2002, 2003, and 2004)]
($49,000 in the case of taxable years beginning
in 2001, $52,200 in the case of taxable years
beginning in 2002 or 2003, and $50,700 in the
case of taxable years beginning in 2004) in the
case of--
(i) a joint return, or
(ii) a surviving spouse,
(B) $33,750 [($35,750 in the case of taxable
years beginning in 2001, 2002, 2003, and 2004)]
($35,750 in the case of taxable years beginning
in 2001, $37,350 in the case of taxable years
beginning in 2002 or 2003, and $36,600 in the
case of taxable years beginning in 2004) in the
case of an individual who--
(i) is not a married individual, and
(ii) is not a surviving spouse,
[(2) Corporations.--In the case of a corporation, the
term ``exemption amount'' means $40,000.]
[(3)] (2) Phase-out of exemption amount.--The
exemption amount of any taxpayer shall be reduced (but
not below zero) by an amount equal to 25 percent of the
amount by which the alternative minimum taxable income
of the taxpayer exceeds--
(A) $150,000 in the case of a taxpayer
described in paragraph (1)(A) [or (2)],
* * * * * * *
[(e) Exemption for Small Corporations.--
[(1) In general.--
[(A) $7,500,000 gross receipts test.--The
tentative minimum tax of a corporation shall be
zero for any taxable year if the corporation's
average annual gross receipts for all 3-
taxable-year periods ending before such taxable
year does not exceed $7,500,000. For purposes
of the preceding sentence, only taxable years
beginning after December 31, 1993, shall be
taken into account.
[(B) $5,000,000 gross receipts test for first
3-year period.--Subparagraph (A) shall be
applied by substituting ``$5,000,000'' for
``$7,500,000'' for the first 3-taxable-year
period (or portion thereof) of the corporation
which is taken into account under subparagraph
(A).
[(C) First taxable year coporation in
existence.--If such taxable year is the first
taxable year that such corporation is in
existence, the tentative minimum tax of such
corporation for such year shall be zero.
[(D) Special rules.--For purposes of this
paragraph, the rules of paragraphs (2) and (3)
of section 448(c) shall apply.
[(2) Prospective application of minimum tax if small
corporation ceases to be small.--In the case of a
corporation whose tentative minimum tax is zero for any
prior taxable year by reason of paragraph (1), the
application of this part for taxable years beginning
with the first taxable year such corporation ceases to
be described in paragraph (1) shall be determined with
the following modifications:
[(A) Section 56(a)(1) (relating to
depreciation) and section 56(a)(5) (relating to
pollution control facilities) shall apply only
to property placed in service on or after the
change date.
[(B) Section 56(a)(2) (relating to mining
exploration and development costs) shall apply
only to costs paid or incurred on or after the
change date.
[(C) Section 56(a)(3) (relating to treatment
of long-term contracts) shall apply only to
contracts entered into on or after the change
date.
[(D) Section 56(a)(4) (relating to
alternative net operating loss deduction) shall
apply in the same manner as if, in section
56(d)(2), the change date were substituted for
``January 1, 1987'' and the day before the
change date were substituted for ``December 31,
1986'' each place it appears.
[(E) Section 56(g)(2)(B) (relating to
limitation on allowance of negative adjustments
based on adjusted current earnings) shall apply
only to prior taxable years beginning on or
after the change date.
[(F) Section 56(g)(4)(A) (relating to
adjustment for depreciation to adjusted current
earnings) shall not apply.
[(G) Subparagraphs (D) and (F) of section
56(g)(4) (relating to other earnings and
profits adjustments and depletion) shall apply
in the same manner as if the day before the
change date were substituted for ``December 31,
1989'' each place it appears therein.
[(3) Exception.--The modifications in paragraph (2)
shall not apply to--
[(A) any item acquired by the corporation in
a transaction to which section 381 applies, and
[(B) any property the basis of which in the
hands of the corporation is determined by
reference to the basis of the property in the
hands of the transferor, if such item or
property was subject to any provision referred
to in paragraph (2) while held by the
transferor.
[(4) Change date.--For purposes of paragraph (2), the
change date is the first day of the first taxable year
for which the taxpayer ceases to be described in
paragraph (1).
[(5) Limitation on use of credit for prior year
minimum tax liability.--In the case of a taxpayer whose
tentative minimum tax for any taxable year is zero by
reason of paragraph (1), section 53(c) shall be applied
for such year by reducing the amount otherwise taken
into account under section 53(c)(1) by 25 percent of so
much of such amount as exceeds $25,000. Rules similar
to the rules of section 38(c)(3)(B) shall apply for
purposes of the preceding sentence.]
SEC. 56. ADJUSTMENTS IN COMPUTING ALTERNATIVE MINIMUM TAXABLE INCOME.
[(a) Adjustments Applicable to All Taxpayers.--] (a) General
Rules.--In determining the amount of the alternative minimum
taxable income for any taxable year the following treatment
shall apply (in lieu of the treatment applicable for purposes
of computing the regular tax):
(1) Depreciation.--
(A) In general.--
(i) Property other than certain
personal property.--Except as provided
in [clause (ii)] clauses (ii) and
(iii), the depreciation deduction
allowable under section 167 with
respect to any tangible property placed
in service after December 31, 1986,
shall be determined under the
alternative system of section 168(g).
In the case of property placed in
service after December 31, 1998, the
preceding sentence shall not apply but
[clause (ii)] clauses (ii) and (iii)
shall continue to apply.
* * * * * * *
(iii) Additional allowance for
certain property acquired after
september 10, 2001, and before
september 11, 2004.--The deduction
under section 168(k) shall be allowed.
* * * * * * *
[(D) Normalization rules.--With respect to
public utility property described in section
168(i)(10), the Secretary shall prescribe the
requirements of a normalization method of
accounting for this section.]
* * * * * * *
(6) Adjusted basis.--The adjusted basis of any
property to which paragraph (1) or (5) applies (or with
respect to which there are any expenditures to which
[paragraph (2) or subsection (b)(2)] paragraph (2) or
(9) applies) shall be determined on the basis of the
treatment prescribed in paragraph (1), (2), [or (5), or
subsection (b)(2)] (5), or (9), whichever applies.
* * * * * * *
[(b) Adjustments Applicable to Individuals.--In determining
the amount of the alternative minimum taxable income of any
taxpayer (other than a corporation), the following treatment
shall apply (in lieu of the treatment applicable for purposes
of computing the regular tax):]
[(1)] (8) Limitation on deductions.--
(A) * * *
* * * * * * *
[(2)] (9) Circulation and research and experimental
expenditures.--
(A) * * *
* * * * * * *
[(C) Special rule for personal holding
companies.--In the case of circulation
expenditures described in section 173, the
adjustments provided in this paragraph shall
apply also to a personal holding company (as
defined in section 542).]
[(D)] (C) Exception for certain research and
experimental expenditures.--If the taxpayer
materially participates (within the meaning of
section 469(h)) in an activity, this paragraph
shall not apply to any amount allowable as
deduction under section 174(a) for expenditures
paid or incurred in connection with such
activity.
[(3)] (10) Treatment of incentive stock options.--
Section 421 shall not apply to the transfer of stock
acquired pursuant to the exercise of an incentive stock
option (as defined in section 422). Section 422(c)(2)
shall apply in any case where the disposition and the
inclusion for purposes of this part are within the same
taxable year and such section shall not apply in any
other case. The adjusted basis of any stock so acquired
shall be determined on the basis of the treatment
prescribed by this paragraph.
[(c) Adjustments Applicable to Corporations.--In determining
the amount of the alternative minimum taxable income of a
corporation, the following treatment shall apply:
[(1) Adjustment for adjusted current earnings.--
Alternative minimum taxable income shall be adjusted as
provided in subsection (g).
[(2) Merchant marine capital construction funds.--In
the case of a capital construction fund established
under section 607 of the Merchant Marine Act, 1936 (46
U.S.C. 1177)--
[(A) subparagraphs (A), (B), and (C) of
section 7518(c)(1) (and the corresponding
provisions of such section 607 shall not apply
to--
[(i) any amount deposited in such
fund after December 31, 1986, or
[(ii) any earnings (including gains
and losses) after December 31, 1986, on
amounts in such fund, and
[(B) no reduction in basis shall be made
under section 7518(f) (or the corresponding
provisions of such section 607 with respect to
the withdrawal from the fund of any amount to
which subparagraph (A) applies.
For purposes of this paragraph, any withdrawal of
deposits or earnings from the fund shall be treated as
allocable first to deposits made before (and earnings
received or accrued before) January 1, 1987.
[(3) Special deduction for certain organizations not
allowed.--The deduction determined under section 833(b)
shall not be allowed.]
[(d)] (b) Alternative Tax Net Operating Loss Deduction
Defined.--
(1) In general.--For purposes of subsection (a)(4),
the term ``alternative tax net operating loss
deduction'' means the net operating loss deduction
allowable for the taxable year under section 172,
except that--
[(A) the amount of such deduction shall not
exceed 90 percent of alternate minimum taxable
income determined without regard to such
deduction, and]
(A) the amount of such deduction shall not
exceed the sum of--
(i) the lesser of--
(I) the amount of such
deduction attributable to net
operating losses (other than
the deduction attributable to
carrybacks described in clause
(ii)(I)), or
(II) 90 percent of alternate
minimum taxable income
determined without regard to
such deduction, plus
(ii) the lesser of--
(I) the amount of such
deduction attributable to
carrybacks of net operating
losses for taxable years ending
after September 10, 2001, and
before September 11, 2004, or
(II) alternate minimum
taxable income determined
without regard to such
deduction reduced by the amount
determined under clause (i),
and
* * * * * * *
[(e)] (c) Qualified Housing Interest.--For purposes of this
part--
(1) In general.--The term ``qualified housing
interest'' means interest which is qualified residence
interest (as defined in section 163(h)(3)) and is paid
or accrued during the taxable year on indebtedness
which is incurred in acquiring, constructing, or
substantially improving any property which--
(A) * * *
* * * * * * *
[(g) Adjustments Based on Adjusted Current Earnings.--
[(1) In general.--The alternative minimum taxable
income of any corporation for any taxable year shall be
increased by 75 percent of the excess (if any) of--
[(A) the adjusted current earnings of the
corporation, over
[(B) the alternative minimum taxable income
(determined without regard to this subsection
and the alternative tax net operating loss
deduction).
[(2) Allowance of negative adjustments.--
[(A) In general.--The alternative minimum
taxable income for any corporation of any
taxable year, shall be reduced by 75 percent of
the excess (if any) of--
[(i) the amount referred to in
subparagraph (B) of paragraph (1), over
[(ii) the amount referred to in
subparagraph (A) of paragraph (1).
[(B) Limitation.--The reduction under
subparagraph (A) for any taxable year shall not
exceed the excess (if any) of--
[(i) the aggregate increases in
alternative minimum taxable income
under paragraph (1) for prior taxable
years, over
[(ii) the aggregate reductions under
subparagraph (A) of this paragraph for
prior taxable years.
[(3) Adjusted current earnings.--For purposes of this
subsection, the term ``adjusted current earnings''
means the alternative minimum taxable income for the
taxable year--
[(A) determined with the adjustments provided
in paragraph (4), and
[(B) determined without regard to this
subsection and the alternative tax net
operating loss deduction.
[(4) Adjustments.--In determining adjusted current
earnings, the following adjustments shall apply:
[(A) Depreciation.--
[(i) Property placed in service after
1989.--The depreciation deduction with
respect to any property placed in
service in a taxable year beginning
after 1989 shall be determined under
the alternative system of section
168(g). The preceding sentence shall
not apply to any property placed in
service after December 31, 1993, and
the depreciation deduction with respect
to such property shall be determined
under the rules of subsection
(a)(1)(A).
[(ii) Property to which new acrs
system applies.--In the case of any
property to which the amendments made
by section 201 of the Tax Reform Act of
1986 apply and which is placed in
service in a taxable year beginning
before 1990, the depreciation deduction
shall be determined--
[(I) by taking into account
the adjusted basis of such
property (as determined for
purposes of computing
alternative minimum taxable
income) as of the close of the
last taxable year beginning
before January 1, 1990, and
[(II) by using the straight-
line method over the remainder
of the recovery period
applicable to such property
under the alternative system of
section 168(g).
[(iii) Property to which original
acrs system applies.--In the case of
any property to which section 168 (as
in effect on the day before the date of
the enactment of the Tax Reform Act of
1986 and without regard to subsection
(d)(1)(A)(ii) thereof) applies and
which is placed in service in a taxable
year beginning before 1990, the
depreciation deduction shall be
determined--
[(I) by taking into account
the adjusted basis of such
property (as determined for
purposes of computing the
regular tax) as of the close of
the last taxable year beginning
before January 1, 1990, and
[(II) by using the straight
line method over the remainder
of the recovery period which
would apply to such property
under the alternative system of
section 168(g).
[(iv) Property placed in service
before 1981.--In the case of any
property not described in clause (i),
(ii), or (iii), the amount allowable as
depreciation or amortization with
respect to such property shall be
determined in the same manner as for
purposes of computing taxable income.
[(v) Special rule for certain property.--In the case of any
property described in paragraph (1), (2), (3), or (4) of
section 168(f), the amount of depreciation allowable for
purposes of the regular tax shall be treated as the amount
allowable under the alternative system of section 168(g).
[(B) Inclusion of items included for purposes
of computing earnings and profits.--
[(i) In general.--In the case of any
amount which is excluded from gross
income for purposes of computing
alternative minimum taxable income but
is taken into account in determining
the amount of earnings and profits--
[(I) such amount shall be
included in income in the same
manner as if such amount were
includible in gross income for
purposes of computing
alternative minimum taxable
income, and
[(II) the amount of such
income shall be reduced by any
deduction which would have been
allowable in computing
alternative minimum taxable
income if such amount were
includible in gross income.
The preceding sentence shall not apply
in the case of any amount excluded from
gross income under section 108 (or the
corresponding provisions of prior law)
or under section 114. In the case of
any insurance company taxable under
section 831(b), this clause shall not
apply to any amount not described in
section 834(b).
[(ii) Inclusion of buildup in life
insurance contracts.--In the case of
any life insurance contract--
[(I) the income on such
contract (as determined under
section 7702(g)) for any
taxable year shall be treated
as includible in gross income
for such year, and
[(II) there shall be allowed
as a deduction that portion of
any premium which is
attributable to insurance
coverage.
[(C) Disallowance of items not deductible in
computing earnings and profits.--
[(i) In general.--A deduction shall
not be allowed for any item if such
item would not be deductible for any
taxable year for purposes of computing
earnings and profits.
[(ii) Special rule for certain
dividends.--
[(I) In general.--Clause (i)
shall not apply to any
deduction allowable under
section 243 or 245 for any
dividend which is a 100-percent
dividend or which is received
from a 20-percent owned
corporation (as defined in
section 243(c)(2)), but only to
the extent such dividend is
attributable to income of the
paying corporation which is
subject to tax under this
chapter (determined after the
application of sections 30A,
936 (including subsections
(a)(4), (i) and (j) thereof)
and 921).
[(II) 100-percent dividend.--
For purposes of subclause (I),
the term ``100 percent
dividend'' means any dividend
if the percentage used for
purposes of determining the
amount allowable as a deduction
under section 243 or 245 with
respect to such dividend is 100
percent.
[(iii) Treatment of taxes on
dividends from 936 corporations.--
[(I) In general.--For
purposes of determining the
alternative minimum foreign tax
credit, 75 percent of any
withholding or income tax paid
to a possession of the United
States with respect to
dividends received from a
corporation eligible for the
credit provided by section 936
shall be treated as a tax paid
to a foreign country by the
corporation receiving the
dividend.
[(II) Limitation.--If the
aggregate amount of the
dividends referred to in
subclause (I) for any taxable
year exceeds the excess
referred to in paragraph (1),
the amount treated as tax paid
to a foreign country under
subclause (I) shall not exceed
the amount which would be so
treated without regard to this
subclause multiplied by a
fraction the numerator of which
is the excess referred to in
paragraph (1) and the
denominator of which is the
aggregate amount of such
dividends.
[(III) Treatment of taxes
imposed on 936 corporation.--
For purposes of this clause,
taxes paid by any corporation
eligible for the credit
provided by section 936 to a
possession of the United States
shall be treated as a
withholding tax paid with
respect to any dividend paid by
such corporation to the extent
such taxes would be treated as
paid by the corporation
receiving the dividend under
rules similar to the rules of
section 902 (and the amount of
any such dividend shall be
increased by the amount so
treated).
[(IV) Separate application of
foreign tax credit
limitations.--In determining
the alternative minimum foreign
tax credit, section 904(d)
shall be applied as if
dividends from a corporation
eligible for the credit
provided by section 936 were a
separate category of income
referred to in a subparagraph
of section 904(d)(1).
[(V) Coordination with limitation on 936
credit.--Any reference in this clause to a
dividend received from a corporation eligible
for the credit provided by section 936 shall be
treated as a reference to the portion of any
such dividend for which the dividends received
deduction is disallowed under clause (i) after
the application of clause (ii)(I).
[(VI) Applications to section
30A corporations.--References
in this clause to section 936
shall be treated as including
references to section 30A.
[(iv) Special rule for certain
dividends received by certain
cooperatives.--In the case of a
cooperative described in section
927(a)(4), clause (i) shall not apply
to any amount allowable as a deduction
under section 245(c).
[(D) Certain other earnings and profits
adjustments.--
[(i) Intangible drilling costs.--The
adjustments provided in section
312(n)(2)(A) shall apply in the case of
amounts paid or incurred in taxable
years beginning after December 31,
1989. In the case of a taxpayer other
than an integrated oil company (as
defined in section 291(b)(4), in the
case of any oil or gas well, this
clause shall not apply in the case of
amounts paid or incurred in taxable
years beginning after December 31,
1992.
[(ii) Certain amortization provisions
not to apply.--Sections 173 and 248
shall not apply to expenditures paid or
incurred in taxable years beginning
after December 31, 1989.
[(iii) Lifo inventory adjustments.--
The adjustments provided in section
312(n)(4) shall apply, but only with
respect to taxable years beginning
after December 31, 1989.
[(iv) Installment sales.--In the case
of any installment sale in a taxable
year beginning after December 31, 1989,
adjusted current earnings shall be
computed as if the corporation did not
use the installment method. The
preceding sentence shall not apply to
the applicable percentage (as
determined under section 453A) of the
gain from any installment sale with
respect to which section 453A(a)(1)
applies.
[(E) Disallowance of loss on exchange of debt
pools.--No loss shall be recognized on the
exchange of any pool of debt obligations for
another pool of debt obligations having
substantially the same effective interest rates
and maturities.
[(F) Depletion.--
[(i) In general.--The allowance for
depletion with respect to any property
placed in service in a taxable year
beginning after December 31, 1989,
shall be cost depletion determined
under section 611.
[(ii) Exception for independent oil
and gas producers and royalty owners.--
In the case of any taxable year
beginning after December 31, 1992,
clause (i) (and subparagraph (C)(i))
shall not apply to any deduction for
depletion computed in accordance with
section 613A(c).
[(G) Treatment of certain ownership
changes.--If--
[(i) there is an ownership change
(within the meaning of section 382) in
a taxable year beginning after 1989
with respect to any corporation, and
[(ii) there is a net unrealized
built-in loss (within the meaning of
section 382(h)) with respect to such
corporation, then the adjusted basis of
each asset of such corporation
(immediately after the ownership
change) shall be its proportionate
share (determined on the basis of
respective fair market values) of the
fair market value of the assets of such
corporation (determined under section
382(h)) immediately before the
ownership change.
[(H) Adjusted basis.--The adjusted basis of
any property with respect to which an
adjustment under this paragraph applies shall
be determined by applying the treatment
prescribed in this paragraph.
[(I) Treatment of charitable
contributions.--Notwithstanding
subparagraphs (B) and (C), no
adjustment related to the
earnings and profits effects of
any charitable contribution
shall be made in computing
adjusted current earnings.
[(5) Other definitions.--For purposes of paragraph
(4)--
[(A) Earnings and profits.--The term
``earnings and profits'' means earnings and
profits computed for purposes of subchapter C.
[(B) Treatment of alternative minimum taxable
income.--The treatment of any item for purposes
of computing alternative minimum taxable income
shall be determined without regard to this
subsection.
[(6) Exception for certain corporations.--This
subsection shall not apply to any S corporation,
regulated investment company, real estate investment
trust, REMIC, or FASIT.]
SEC. 57. ITEMS OF TAX PREFERENCE.
(a) General Rule.--For purposes of this part, the items of
tax preference determined under this section are--
(1) * * *
(2) Intangible drilling costs.--
(A) * * *
* * * * * * *
(E) Exception [for independent producers].--
In the case of any oil or gas well--
[(i) In general.--In the case of any
taxable year beginning after December
31, 1992, this paragraph shall not
apply to any taxpayer which is not an
integrated oil company (as defined in
section 291(b)(4)).]
(i) In general.--This paragraph shall
not apply to any taxable year beginning
after December 31, 1992.
* * * * * * *
(7) Exclusion for gains on sale of certain small
business stock.--An amount equal to [42] 28 percent of
the amount excluded from gross income for the taxable
year under section 1202. [In the case of stock the
holding period of which begins after December 31, 2000
(determined with the application of the last sentence
of section 1(h)(2)(B)), the preceding sentence shall be
applied by substituting ``28 percent'' for ``42
percent''.]
* * * * * * *
SEC. 58. DENIAL OF CERTAIN LOSSES.
(a) Denial of Farm Loss.--
(1) * * *
* * * * * * *
[(3) Application to personal service corporations.--
For purposes of paragraph (1), a personal service
corporation (within the meaning of section 469(j)(2))
shall be treated as a taxpayer other than a
corporation.]
[(4)] (3) Determination of loss.--In determining the
amount of the loss from any tax shelter farm activity,
the adjustments of sections 56 and 57 shall apply.
* * * * * * *
SEC. 59. OTHER DEFINITIONS AND SPECIAL RULES.
(a) * * *
[(b) Minimum Tax Not to Apply to Income Eligible for Credits
Under Section 30A or 936.--In the case of any corporation for
which a credit is allowable for the taxable year under section
30A or 936, alternative minimum taxable income shall not
include any income with respect to which a credit is determined
under section 30A or 936.]
[(c)] (b) Treatment of Estates and Trusts.--In the case of
any estate or trust, the alternative minimum taxable income of
such estate or trust and any beneficiary thereof shall be
determined by applying part I of subchapter J with the
adjustments provided in this part.
[(d)] (c) Apportionment of Differently Treated Items in Case
of Certain Entities.--
(1) * * *
* * * * * * *
[(e)] (d) Optional 10-Year Write-Off of Certain Tax
Preferences.--
(1) * * *
(2) Qualified expenditure.--For purposes of this
subsection, the term ``qualified expenditure'' means
any amount which, but for an election under this
subsection, would have been allowable as a deduction
[(determined without regard to section 291)] for the
taxable year in which paid or incurred under--
(A) * * *
* * * * * * *
[(f) Coordination with Section 291.--Except as otherwise
provided in this part, section 291 (relating to cutback of
corporate preferences) shall apply before the application of
this part.]
[(g)] (e) Tax Benefit Rule.--The Secretary may prescribe
regulations under which differently treated items shall be
properly adjusted where the tax treatment giving rise to such
items will not result in the reduction of the taxpayer's
regular tax for the taxable year for which item is taken into
account or for any other taxable year.
[(h)] (f) Coordination with Certain Limitations.--The
limitations of sections 704(d), 465, and 1366(d) (and such
other provisions as may be specified in regulations) shall be
applied for purposes of computing the alternative minimum
taxable income of the taxpayer for the taxable year with the
adjustments of sections 56, 57, and 58.
[(i)] (g) Special Rule for Amounts Treated as Tax
Preference.--For purposes of this subtitle (other than this
part), any amount shall not fail to be treated as wholly exempt
from tax imposed by this subtitle solely by reason of being
included in alternative minimum taxable income.
[(j)] (h) Treatment of Unearned Income of Minor Children.--
(1) In general.--In the case of a child to whom
section 1(g) applies, the exemption amount for purposes
of section 55 shall not exceed the sum of--
* * * * * * *
[PART VII--ENVIRONMENTAL TAX
[59A. Environmental tax.
[SEC. 59A. ENVIRONMENTAL TAX.
[(a) Imposition of Tax.--In the case of a corporation, there
is hereby imposed (in addition to any other tax imposed by this
subtitle) a tax equal to 0.12 percent of the excess of--
[(1) the modified alternative minimum taxable income
of such corporation for the taxable year, over
[(2) $2,000,000.
[(b) Modified Alternative Minimum Taxable Income.--For
purposes of this section, the term ``modified alternative
minimum taxable income'' means alternative minimum taxable
income (as defined in section 55(b)(2) but determined without
regard to--
[(1) the alternative tax net operating loss deduction
(as defined in section 56(d)) and
[(2) the deduction allowed under section 164(a)(5).
[(c) Exception for RIC's and REIT's.--The tax imposed by
subsection (a) shall not apply to--
[(1) a regulated investment company to which part I
of subchapter M applies, and
[(2) a real estate investment trust to which part II
of subchapter M applies.
[(d) Special Rules.--
[(1) Short taxable years.--The application of this
section to taxable years of less than 12 months shall
be in accordance with regulations prescribed by the
Secretary.
[(2) Section 15 not to apply.--Section 15 shall not
apply to the tax imposed by this section.
[(e) Application of Tax.--
[(1) In general.--The tax imposed by this section
shall apply to taxable years beginning after December
31, 1986, and before January 1, 1996.
[(2) Earlier termination.--The tax imposed by this
section shall not apply to taxable years--
[(A) beginning during a calendar year during
which no tax is imposed under section 4611(a)
by reason of paragraph (2) of section 4611(e),
and
[(B) beginning after the calendar year which
includes the termination date under paragraph
(3) of section 4611(e).]
Subchapter B--Computation of Taxable Income
* * * * * * *
PART II--ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
* * * * * * *
SEC. 72. ANNUITIES; CERTAIN PROCEEDS OF ENDOWMENT AND LIFE INSURANCE
CONTRACTS.
(a) * * *
* * * * * * *
(t) 10-percent Additional Tax on Early Distributions from
Qualified Retirement Plans.--
(1) * * *
(2) Subsection not to apply to certain
distributions.--Except as provided in paragraphs (3)
and (4), paragraph (1) shall not apply to any of the
following distributions:
(A) * * *
* * * * * * *
(D) Distributions to unemployed individuals
for health insurance premiums.--
(i) * * *
* * * * * * *
(iv) Special rules for individuals
receiving unemployment compensation
after september 10, 2001, and before
january 1, 2003.--In the case of an
individual who receives unemployment
compensation for 4 consecutive weeks
after September 10, 2001, and before
January 1, 2003--
(I) clause (i) shall apply to
distributions from all
qualified retirement plans (as
defined in section 4974(c)),
and
(II) such 4 consecutive weeks
shall be substituted for the 12
consecutive weeks referred to
in subclause (I) of clause (i).
* * * * * * *
PART III--ITEMS SPECIFICALY EXCLUDED FROM GROSS INCOME
* * * * * * *
SEC. 108. INCOME FROM DISCHARGE OF INDEBTEDNESS.
(a) * * *
* * * * * * *
(d) Meaning of Terms; Special Rules Relating to Certain
Provisions.--
(1) * * *
* * * * * * *
(7) Special rules for s corporation.--
(A) Certain provisions to be applied at
corporate level.--In the case of an S
corporation, subsections (a), (b), (c), and (g)
shall be applied at the corporate level,
including by not taking into account under
section 1366(a) any amount excluded under
subsection (a) of this section.
* * * * * * *
PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
* * * * * * *
SEC. 164. TAXES.
(a) General Rule.--Except as otherwise provided in this
section, the following taxes shall be allowed as a deduction
for the taxable year within which paid or accrued:
(1) * * *
* * * * * * *
[(5) The environmental tax imposed by section 59a.--
In addition, there shall be allowed as a deduction
State and local, and foreign, taxes not described in
the preceding sentence which are paid or accrued within
the taxable year in carrying on a trade or business or
an activity described in section 212 (relating to
expenses for production of income). Notwithstanding the
preceding sentence, any tax (not described in the first
sentence of this subsection) which is paid or accrued
by the taxpayer in connection with an acquisition or
disposition of property shall be treated as part of the
cost of the acquired property or, in the case of a
disposition, as a reduction in the amount realized on
the disposition.]
* * * * * * *
SEC. 168. ACCELERATED COST RECOVERY SYSTEM.
(a) * * *
(b) Applicable Depreciation Method.--For purposes of this
section--
(1) * * *
* * * * * * *
(3) Property to which straight line method applies.--
The applicable depreciation method shall be the
straight line method in the case of the following
property:
(A) * * *
* * * * * * *
(G) Qualified leasehold improvement property
described in subsection (e)(6).
* * * * * * *
(e) Classification of Property.--For purposes of this
section--
(1) * * *
* * * * * * *
(3) Classification of certain property.--
(A) * * *
* * * * * * *
(E) 15-year property.--The term ``15-year
property'' includes--
(i) any municipal wastewater
treatment plant,
(ii) any telephone distribution plant
and comparable equipment used for 2-way
exchange of voice and data
communications, [and]
(iii) any section 1250 property which
is a retail motor fuels outlet (whether
or not food or other convenience items
are sold at the outlet)[.], and
(iv) any qualified leasehold
improvement property.
* * * * * * *
(6) Qualified leasehold improvement property.--
(A) In general.--The term ``qualified
leasehold improvement property'' means any
improvement to an interior portion of a
building which is nonresidential real property
if--
(i) such improvement is made under or
pursuant to a lease (as defined in
subsection (h)(7))--
(I) by the lessee (or any
sublessee) of such portion, or
(II) by the lessor of such
portion,
(ii) such portion is to be occupied
exclusively by the lessee (or any
sublessee) of such portion, and
(iii) such improvement is placed in
service more than 3 years after the
date the building was first placed in
service.
(B) Certain improvements not included.--Such
term shall not include any improvement for
which the expenditure is attributable to--
(i) the enlargement of the building,
(ii) any elevator or escalator,
(iii) any structural component
benefiting a common area, and
(iv) the internal structural
framework of the building.
(C) Definitions and special rules.--For
purposes of this paragraph--
(i) Commitment to lease treated as
lease.--A commitment to enter into a
lease shall be treated as a lease, and
the parties to such commitment shall be
treated as lessor and lessee,
respectively.
(ii) Related persons.--A lease
between related persons shall not be
considered a lease. For purposes of the
preceding sentence, the term ``related
persons'' means--
(I) members of an affiliated
group (as defined in section
1504), and
(II) persons having a
relationship described in
subsection (b) of section 267;
except that, for purposes of
this clause, the phrase ``80
percent or more'' shall be
substituted for the phrase
``more than 50 percent'' each
place it appears in such
subsection.
(D) Improvements made by lessor.--
(i) In general.--In the case of an
improvement made by the person who was
the lessor of such improvement when
such improvement was placed in service,
such improvement shall be qualified
leasehold improvement property (if at
all) only so long as such improvement
is held by such person.
(ii) Exception for changes in form of
business.--Property shall not cease to
be qualified leasehold improvement
property under clause (i) by reason
of--
(I) death,
(II) a transaction to which
section 381(a) applies, or
(III) a mere change in the
form of conducting the trade or
business so long as the
property is retained in such
trade or business as qualified
leasehold improvement property
and the taxpayer retains a
substantial interest in such
trade or business.
* * * * * * *
(g) Alternative depreciation system for certain property
(1) * * *
* * * * * * *
(3) Special rules for determining class life.--
(A) * * *
(B) Special rule for certain property
assigned to classes.--For purposes of paragraph
(2), in the case of property described in any
of the following subparagraphs of subsection
(e)(3), the class life shall be determined as
follows:
If property is described The class
in subparagraph: life is:
(A)(ii)............................................. 4
(B)(ii)............................................. 5
(B)(iii)............................................ 9.5
(C)(i).............................................. 10
(D)(i).............................................. 15
(D)(ii)............................................. 20
(E)(i).............................................. 24
(E)(ii)............................................. 24
(E)(iii)............................................ 20
(E)(iv)............................................. 15
* * * * * * *
(k) Special Allowance for Certain Property Acquired After
September 10, 2001, and Before September 11, 2004.--
(1) Additional allowance.--In the case of any
qualified property--
(A) the depreciation deduction provided by
section 167(a) for the taxable year in which
such property is placed in service shall
include an allowance equal to 30 percent of the
adjusted basis of the qualified property, and
(B) the adjusted basis of the qualified
property shall be reduced by the amount of such
deduction before computing the amount otherwise
allowable as a depreciation deduction under
this chapter for such taxable year and any
subsequent taxable year.
(2) Qualified property.--For purposes of this
subsection--
(A) In general.--The term ``qualified
property'' means property--
(i)(I) to which this section applies
which has a recovery period of 20 years
or less or which is water utility
property, or
(II) which is computer software (as
defined in section 167(f)(1)(B)) for
which a deduction is allowable under
section 167(a) without regard to this
subsection,
(ii) the original use of which
commences with the taxpayer after
September 10, 2001,
(iii) which is--
(I) acquired by the taxpayer
after September 10, 2001, and
before September 11, 2004, but
only if no written binding
contract for the acquisition
was in effect before September
11, 2001, or
(II) acquired by the taxpayer
pursuant to a written binding
contract which was entered into
after September 10, 2001, and
before September 11, 2004, and
(iv) which is placed in service by
the taxpayer before January 1, 2005.
(B) Exceptions.--
(i) Alternative depreciation
property.--The term ``qualified
property'' shall not include any
property to which the alternative
depreciation system under subsection
(g) applies, determined--
(I) without regard to
paragraph (7) of subsection (g)
(relating to election to have
system apply), and
(II) after application of
section 280F(b) (relating to
listed property with limited
business use).
(ii) Election out.--If a taxpayer
makes an election under this clause
with respect to any class of property
for any taxable year, this subsection
shall not apply to all property in such
class placed in service during such
taxable year.
(iii) Repaired or reconstructed
property.--Except as otherwise provided
in regulations, the term ``qualified
property'' shall not include any
repaired or reconstructed property.
(iv) Qualified leasehold improvement
property.--The term ``qualified
property'' shall not include any
qualified leasehold improvement
property (as defined in section
168(e)(6)).
(C) Special rules relating to original use.--
(i) Self-constructed property.--In
the case of a taxpayer manufacturing,
constructing, or producing property for
the taxpayer's own use, the
requirements of clause (iii) of
subparagraph (A) shall be treated as
met if the taxpayer begins
manufacturing, constructing, or
producing the property after September
10, 2001, and before September 11,
2004.
(ii) Sale-leasebacks.--For purposes
of subparagraph (A)(ii), if property--
(I) is originally placed in
service after September 10,
2001, by a person, and
(II) is sold and leased back
by such person within 3 months
after the date such property
was originally placed in
service,
such property shall be treated as
originally placed in service not
earlier than the date on which such
property is used under the leaseback
referred to in subclause (II).
(D) Coordination with section 280f.--For
purposes of section 280F--
(i) Automobiles.--In the case of a
passenger automobile (as defined in
section 280F(d)(5)) which is qualified
property, the Secretary shall increase
the limitation under section
280F(a)(1)(A)(i) by $4,600.
(ii) Listed property.--The deduction
allowable under paragraph (1) shall be
taken into account in computing any
recapture amount under section
280F(b)(2).
* * * * * * *
SEC. 172. NET OPERATING LOSS DEDUCTION.
(a) * * *
(b) Net operating carrybacks and carryovers.--
(1) Years to which loss may be carried.--
(A) * * *
* * * * * * *
(H) In the case of a taxpayer which has a net
operating loss for any taxable year ending
after September 10, 2001, and before September
11, 2004, subparagraph (A)(i) shall be applied
by substituting ``5'' for ``2'' and
subparagraph (F) shall not apply.
* * * * * * *
(j) Election to Disregard 5-Year Carryback for Certain Net
Operating Losses.--Any taxpayer entitled to a 5-year carryback
under subsection (b)(1)(H) from any loss year may elect to have
the carryback period with respect to such loss year determined
without regard to subsection (b)(1)(H). Such election shall be
made in such manner as may be prescribed by the Secretary and
shall be made by the due date (including extensions of time)
for filing the taxpayer's return for the taxable year of the
net operating loss. Such election, once made for any taxable
year, shall be irrevocable for such taxable year.
[(j)] (k) Cross references
(1) * * *
* * * * * * *
SEC. 173. CIRCULATION EXPENDITURES.
(a) * * *
(b) Cross reference
For election of 3-year amortization of expenditures allowable
as a deduction under subsection (a), see section [59(e)] 59(d).
SEC. 174. RESEARCH AND EXPERIMENTAL EXPENDITURES.
(a) * * *
* * * * * * *
(f) Cross References.--
(1) * * *
(2) For election of 10-year amortization of expenditures
allowable as a deduction under subsection (a), see section
[59(e)] 59(d).
* * * * * * *
SEC. 179. ELECTION TO EXPENSE CERTAIN DEPRECIABLE BUSINESS ASSETS.
(a) * * *
(b) Limitations.--
(1) Dollar limitation.--The aggregate cost which may
be taken into account under subsection (a) for any
taxable year shall not exceed the following applicable
amount:
[If the taxable year The applicable
begins in: amount is:
1997................................................ 18,000
1998................................................ 18,500
1999................................................ 19,000
2000................................................ 20,000
2001 or 2002........................................ 24,000
2003 or thereafter.................................. 25,000]
If the taxable year The applicable
begins in: amount is:
2001................................................ $24,000
2002 or 2003........................................ $35,000
2004 or thereafter.................................. $25,000.
(2) Reduction in limitation.--The limitation under
paragraph (1) for any taxable year shall be reduced
(but not below zero) by the amount by which the cost of
section 179 property placed in service during such
taxable year exceeds $200,000 ($325,000 in the case of
taxable years beginning during 2002 or 2003).
* * * * * * *
SEC. 179A. DEDUCTION FOR CLEAN-FUEL VEHICLES AND CERTAIN REFUELING
PROPERTY.
(a) * * *
(b) Limitations.--
(1) Qualified clean-fuel vehicle property.--
(A) * * *
(B) Phaseout.--In the case of any qualified
clean-fuel vehicle property placed in service
after December 31, [2001] 2003, the limit
otherwise applicable under subparagraph (A)
shall be reduced by--
(i) 25 percent in the case of
property placed in service in calendar
year [2002] 2004,
(ii) 50 percent in the case of
property placed in service in calendar
year [2003] 2005, and
(iii) 75 percent in the case of
property placed in service in calendar
year [2004] 2006.
* * * * * * *
(f) Termination.--This section shall not apply to any
property placed in service after December 31, [2004] 2006.
* * * * * * *
PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
* * * * * * *
SEC. 220. ARCHER MSAS.
(a) * * *
* * * * * * *
(i) Limitation on Number of Taxpayers Having Archer MSAs.--
(1) * * *
(2) Cut-off year.--For purposes of paragraph (1), the
term ``cut-off year'' means the earlier of
(A) calendar year [2002] 2003, or
(B) the first calendar year before [2002]
2003 for which the Secretary determines under
subsection (j) that the numerical limitation
for such year has been exceeded.
(3) Active msa participant.--For purposes of this
subsection--
(A) * * *
(B) Special rule for cut-off years before
[2002] 2003.--In the case of a cut-off year
before [2002] 2003--
(i) * * *
* * * * * * *
(j) Determination of Whether Numerical Limits Are Exceeded.--
(1) * * *
(2) Determination of whether limit exceeded for
[1998, 1999, or 2001] 1998, 1999, 2001, or 2002.--
(A) In general.--The numerical limitation for
[1998, 1999, or 2001] 1998, 1999, 2001, or 2002
is exceeded if the sum of--
(i) the number of MSA returns filed
on or before April 15 of such calendar
year for taxable years ending with or
within the preceding calendar year,
plus
(ii) the Secretary's estimate
(determined on the basis of the returns
described in clause (i)) of the number
of MSA returns for such taxable years
which will be filed after such
date,exceeds 750,000 (600,000 in the
case of 1998). For purposes of the
preceding sentence, the term ``MSA
return'' means any return on which any
exclusion is claimed under section
106(b) or any deduction is claimed
under this section.
(B) Alternative computation of limitation.--
The numerical limitation for [1998, 1999, or
2001] 1998, 1999, 2001, or 2002 is also
exceeded if the sum of--
(i) * * *
* * * * * * *
(4) Reporting by msa trustees.--
(A) In general.--Not later than August 1 of
1997, 1998, 1999, [and 2001] 2001, and 2002
each person who is the trustee of an Archer MSA
established before July 1 of such calendar year
shall make a report to the Secretary (in such
form and manner as the Secretary shall specify)
which specifies--
(i) * * *
* * * * * * *
PART IX--ITEMS NOT DEDUCTABLE
* * * * * * *
SEC. 263. CAPITAL EXPENDITURES.
(a) * * *
* * * * * * *
(c) Intangible Drilling and Development Costs in the Case of
Oil and Gas Wells and Geothermal Wells.--Notwithstanding
subsection (a), and except as provided in subsection (i),
regulations shall be prescribed by the Secretary under this
subtitle corresponding to the regulations which granted the
option to deduct as expenses intangible drilling and
development costs in the case of oil and gas wells and which
were recognized and approved by the Congress in House
Concurrent Resolution 50, Seventy-ninth Congress. Such
regulations shall also grant the option to deduct as expenses
intangible drilling and development costs in the case of wells
drilled for any geothermal deposit (as defined in section
613(e)(2)) to the same extent and in the same manner as such
expenses are deductible in the case of oil and gas wells. This
subsection shall not apply with respect to any costs to which
any deduction is allowed under section [59(e)] 59(d) or 291.
* * * * * * *
SEC. 263A. CAPITALIZATION AND INCLUSION IN INVENTORY COSTS OF CERTAIN
EXPENSES.
(a) * * *
* * * * * * *
(c) General Exceptions
(1) * * *
* * * * * * *
(6) Coordination with section [59(e)] 59(d).--
Paragraphs (2) and (3) shall apply to any amount
allowable as a deduction under section [59(e)] 59(d)
for qualified expenditures described in subparagraphs
(B), (C), (D), and (E) of paragraph (2) thereof.
* * * * * * *
SEC. 275. CERTAIN TAXES.
(a) General Rule.--No deduction shall be allowed for the
following taxes:
(1) * * *
* * * * * * *
Paragraph (1) shall not apply to any taxes to the
extent such taxes are allowable as a deduction under
section 164(f). [Paragraph (1) shall not apply to the
tax imposed by section 59A.] A rule similar to the rule
of section 943(d) shall apply for purposes of paragraph
(4)(C)
* * * * * * *
SEC. 280F. LIMITATION ON DEPRECIATION FOR LUXURY AUTOMOBILES;
LIMITATION WHERE CERTAIN PROPERTY USED FOR PERSONAL
PURPOSES.
(a) Limitation on Amount of Depreciation for Luxury
Automobiles.--
(1) Depreciation.--
(A) * * *
* * * * * * *
(C) Special rule for certain clean-fuel
passenger automobiles.--
(i) * * *
* * * * * * *
(iii) Application of subparagraph.--
This subparagraph shall apply to
property placed in service after August
5, 1997, and before January 1, 2007.
* * * * * * *
Subchapter C--Corporate Distributions and Adjustments
* * * * * * *
PART V--CARRYOVERS
* * * * * * *
SEC. 382. LIMITATION ON NET OPERATING LOSS CARRYFORWARDS AND CERTAIN
BUILT-IN LOSSES FOLLOWING OWNERSHIP CHANGE.
(a) * * *
* * * * * * *
(l) Certain Additional Operating Rules.--For purposes of this
section--
(1) * * *
* * * * * * *
[(7) Coordination with alternative minimum tax.--The
Secretary shall by regulation provide for the
application of this section to the alternative tax net
operating loss deduction under section 56(d).]
[(8)] (7) Predecessor and successor entities.--Except
as provided in regulations, any entity and any
predecessor or successor entities of such entity shall
be treated as 1 entity.
* * * * * * *
Subchapter E--Accounting Periods and Methods of Accounting
* * * * * * *
PART II--METHODS OF ACCOUNTING
* * * * * * *
Subpart A--Methods of Accounting in General
* * * * * * *
SEC. 448. LIMITATION ON USE OF CASH METHOD OF ACCOUNTING.
(a) * * *
* * * * * * *
(d) Definitions and Special Rules.--For purposes of this
section--
(1) * * *
* * * * * * *
[(5) Special rule for services.--In the case of any
person using an accrual method of accounting with
respect to amounts to be received for the performance
of services by such person, such person shall not be
required to accrue any portion of such amounts which
(on the basis of experience) will not be collected.
This paragraph shall not apply to any amount if
interest is required to be paid on such amount or there
is any penalty for failure to timely pay such amount.]
(5) Special rule for certain services.--
(A) In general.--In the case of any person
using an accrual method of accounting with
respect to amounts to be received for the
performance of services by such person, such
person shall not be required to accrue any
portion of such amounts which (on the basis of
such person's experience) will not be collected
if--
(i) such services are in fields
referred to in paragraph (2)(A), or
(ii) such person meets the gross
receipts test of subsection (c) for all
prior taxable years.
(B) Exception.--This paragraph shall not
apply to any amount if interest is required to
be paid on such amount or there is any penalty
for failure to timely pay such amount.
(C) Regulations.--The Secretary shall
prescribe regulations to permit taxpayers to
determine amounts referred to in subparagraph
(A) using computations or formulas which, based
on experience, accurately reflect the amount of
income that will not be collected by such
person. A taxpayer may adopt, or request
consent of the Secretary to change to, a
computation or formula that clearly reflects
the taxpayer's experience. A request under the
preceding sentence shall be approved only if
such computation or formula clearly reflects
the taxpayer's experience.
* * * * * * *
Subchapter I--Natural Resources
* * * * * * *
PART I--DEDUCTIONS
* * * * * * *
SEC. 613A. LIMITATIONS ON PERCENTAGE DEPLETION IN CASE OF OIL AND GAS
WELLS.
(a) * * *
* * * * * * *
(c) Exemption for Independent Producers and Royalty Owners.--
(1) * * *
* * * * * * *
(6) Oil and natural gas produced from marginal
properties.--
(A) * * *
* * * * * * *
(H) Temporary suspension of taxable income
limit with respect to marginal production.--The
second sentence of subsection (a) of section
613 shall not apply to so much of the allowance
for depletion as is determined under
subparagraph (A) for any taxable year beginning
after December 31, 1997, and before January 1,
[2002] 2004.
* * * * * * *
SEC. 616. DEVELOPMENT EXPENDITURES.
(a) * * *
* * * * * * *
(e) Cross Reference.--
For election of 10-year amortization of expenditures allowable
as a deduction under subsection (a), see section [59(e)] 59(d).
SEC. 617. DEDUCTION AND RECAPTURE OF CERTAIN MINING EXPLORATION
EXPENDITURES.
(a) * * *
* * * * * * *
(i) Cross Reference.--
For election of 10-year amortization of expenditures allowable
as a deduction under this section, see section [59(e)] 59(d).
* * * * * * *
Subchapter L--Insurance Companies
* * * * * * *
PART I--LIFE INSURANCE COMPANIES
* * * * * * *
Subpart D--Accounting, Allocation, and Foreign Provisions
* * * * * * *
SEC. 815. DISTRIBUTIONS TO SHAREHOLDERS FROM PRE-1984 POLICYHOLDERS
SURPLUS ACCOUNT.
(a) * * *
* * * * * * *
(c) Shareholders Surplus Account.--
(1) * * *
(2) Additions to account.--The amount added to the
shareholders surplus account for any taxable year
beginning after December 31, 1983, shall be the excess
of--
(A) * * *
* * * * * * *
[If for any taxable year a tax is imposed by section 55, under
regulations proper adjustments shall be made for such year and
all subsequent taxable years in the amounts taken into account
under subparagraphs (A) and (B) of this paragraph and
subparagraph (B) of subsection (d)(3).]
* * * * * * *
PART III--PROVISIONS OF GENERAL APPLICATION
* * * * * * *
SEC. 847. SPECIAL ESTIMATED TAX PAYMENTS.
In the case of taxable years beginning after December 31,
1987, of an insurance company required to discount unpaid
losses (as defined in section 846)--
(1) * * *
* * * * * * *
(9) Effect on earnings and profits. In determining
the earnings and profits--
(A) * * *
* * * * * * *
[Nothing in the preceding sentence shall be construed to
affect the application of section 56(g) (relating to
adjustments based on adjusted current earnings).]
(10) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry
out the purposes of this section, including
regulations--
(A) providing for the separate application of
this section with respect to each accident
year, and
[(B) such adjustments in the application of
this section as may be necessary to take into
account the tax imposed by section 55, and]
[(C)] (B) providing for the application of
this section in cases where the deduction
allowed under paragraph (1) for any taxable
year is less than the excess referred to in
paragraph (1) for such year.
SEC. 848. CAPITALIZATION OF CERTAIN POLICY ACQUISITION EXPENSES.
(a) * * *
* * * * * * *
[(i) Treatment of Qualified Foreign Contracts Under Adjusted
Current Earnings Preference.--For purposes of determining
adjusted current earnings under section 56(g), acquisition
expenses with respect to contracts described in clause (iii) of
subsection (e)(1)(B) shall be capitalized and amortized in
accordance with the treatment generally required under
generally accepted accounting principles as if this subsection
applied to such contracts for all taxable years.]
[(j)] (i) Transitional Rule.--In the case of any taxable year
which includes September 30, 1990, the amount taken into
account as the net premiums (or negative capitalization amount)
with respect to any category of specified insurance contracts
shall be the amount which bears the same ratio to the amount
which (but for this subsection) would be so taken into account
as the number of days in such taxable year on or after
September 30, 1990, bears to the total number of days in such
taxable year.
* * * * * * *
Subchapter N--Tax Based on Income From Sources Within or Without the
United States
* * * * * * *
PART II--NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
* * * * * * *
Subpart B--Foreign Corporations
* * * * * * *
SEC. 882. TAX ON INCOME OF FOREIGN CORPORATIONS CONNECTED WITH UNITED
STATES BUSINESS.
(a) Imposition of tax.--
(1) In general.--A foreign corporation engaged in
trade or business within the United States during the
taxable year shall be taxable as provided in section
11, [55, 59A,] or 1201(a) on its taxable income which
is effectively connected with the conduct of a trade or
business within the United States.
* * * * * * *
PART III--INCOME FROM SOURCES WITHOUT THE UNITED STATES
* * * * * * *
Subpart A--Foreign Tax Credit
* * * * * * *
SEC. 904. LIMITATION ON CREDIT.
(a) * * *
* * * * * * *
(h) Coordination With Nonrefundable Personal Credits.--In the
case of an individual, for purposes of subsection (a), the tax
against which the credit is taken is such tax reduced by the
sum of the credits allowable under subpart A of part IV of
subchapter A of this chapter. This subsection shall not apply
to taxable years beginning [during 2000 or 2001] during 2000,
2001, 2002, or 2003.
* * * * * * *
Subpart D--Possessions of the United States
* * * * * * *
SEC. 936. PUERTO RICO AND POSSESSION TAX CREDIT.
(a) Allowance of Credit.--
(1) * * *
* * * * * * *
(3) Credit not allowed against certain taxes.--The
credit provided by paragraph (1) shall not be allowed
against the tax imposed by--
[(A) section 59A (relating to environmental
tax),]
[(B)] (A) section 531 (relating to the tax on
accumulated earnings),
[(C)] (B) section 541 (relating to personal
holding company tax), or
[(D)] (C) section 1351 (relating to
recoveries of foreign expropriation losses).
* * * * * * *
Subpart F--Controlled Foreign Corporations
* * * * * * *
SEC. 953. INSURANCE INCOME.
(a) * * *
* * * * * * *
(e) Exempt Insurance Income.--For purposes of this section--
(1) * * *
* * * * * * *
(10) Application.--This subsection and section 954(i)
shall apply only to taxable years of a foreign
corporation beginning after December 31, 1998[, and
before January 1, 2002,] and to taxable years of United
States shareholders with or within which any such
taxable year of such foreign corporation ends. [If this
subsection does not apply to a taxable year of a
foreign corporation beginning after December 31, 2001
(and taxable years of United States shareholders ending
with or within such taxable year), then,
notwithstanding the preceding sentence, subsection (a)
shall be applied to such taxable years in the same
manner as it would if the taxable year of the foreign
corporation began in 1998.]
* * * * * * *
SEC. 954. FOREIGN BASE COMPANY INCOME.
(a) * * *
* * * * * * *
(h) Special Rule for Income Derived in the Active Conduct of
Banking, Financing, or Similar Businesses.--For purposes of
subsection (c)(1), foreign personal holding company income
shall not include qualified banking or financing income of an
eligible controlled foreign corporation.
(2) * * *
* * * * * * *
(9) Application.--This subsection, subsection
(c)(2)(C)(ii), and the last sentence of subsection
(e)(2) shall apply only to taxable years of a foreign
corporation beginning after December 31, 1998[, and
before January 1, 2002,] and to taxable years of United
States shareholders with or within which any such
taxable year of such foreign corporation ends.
(i) Special Rule for Income Derived in the Active Conduct of
Insurance Business.--
(1) * * *
* * * * * * *
(4) Methods for determining unearned premiums and
reserves.--For purposes of paragraph (2)(A)--
(A) * * *
[(B) Life insurance and annuity contracts.--
The amount of the reserve of a qualifying
insurance company or qualifying insurance
company branch for any life insurance or
annuity contract shall be equal to the greater
of--
[(i) the net surrender value of such
contract (as defined in section
807(e)(1)(A)), or
[(ii) the reserve determined under
paragraph (5).]
(B) Life insurance and annuity contracts.--
(i) In general.--Except as provided
in clause (ii), the amount of the
reserve of a qualifying insurance
company or qualifying insurance company
branch for any life insurance or
annuity contract shall be equal to the
greater of--
(I) the net surrender value
of such contract (as defined in
section 807(e)(1)(A)), or
(II) the reserve determined
under paragraph (5).
(ii) Ruling request.--The amount of
the reserve under clause (i) shall be
the foreign statement reserve for the
contract (less any catastrophe,
deficiency, equalization, or similar
reserves), if, pursuant to a ruling
request submitted by the taxpayer, the
Secretary determines that the factors
taken into account in determining the
foreign statement reserve provide an
appropriate means of measuring income.
* * * * * * *
SEC. 962. ELECTION BY INDIVIDUALS TO BE SUBJECT TO TAX AT CORPORATE
RATES.
(a) General Rule.--Under regulations prescribed by the
Secretary, in the case of a United States shareholder who is an
individual and who elects to have the provisions of this
section apply for the taxable year--
(1) the tax imposed under this chapter on amounts
which are included in his gross income under section
951(a) shall (in lieu of the tax determined under
sections 1 and 55) be an amount equal to the tax which
would be imposed under [sections 11 and 55] section 11
if such amounts were received by a domestic
corporation, and
* * * * * * *
Subchapter O--Gain or Loss on Disposition of Property
* * * * * * *
PART II--BASIS RULES OF GENERAL APPLICATION
* * * * * * *
SEC. 1016. ADJUSTMENTS TO BASIS.
(a) General Rule.--Proper adjustment in respect of the
property shall in all cases be made--
(1) * * *
* * * * * * *
(20) for amounts allowed as deductions under section
[59(e)] 59(d) (relating to optional 10-year write-off
of certain tax preferences);
* * * * * * *
Subchapter P--Capital Gains and Losses
* * * * * * *
PART II--TREATMENT OF CAPITAL LOSSES
* * * * * * *
SEC. 1211. LIMITATION ON CAPITAL LOSSES.
(a) * * *
(b) Other Taxpayers.--In the case of a taxpayer other than a
corporation, losses from sales or exchanges of capital assets
shall be allowed only to the extent of the gains from such
sales or exchanges, plus (if such losses exceed such gains) the
lower of--
(1) * * *
* * * * * * *
Paragraph (1) shall be applied by substituting ``$4,000'' for
``$3,000'' and ``$2,000'' for ``$1,500'' in the case of taxable
years beginning in 2001, and by substituting ``$5,000'' for
``$3,000'' and ``$2,500'' for ``$1,500'' in the case of taxable
years beginning in 2002.
* * * * * * *
Subchapter U--Designation and Treatment of Empowerment Zones,
Enterprise Communities, and Rural Development Investment Areas
* * * * * * *
PART IV--INCENTIVES FOR EDUCATION ZONES
* * * * * * *
SEC. 1397E. CREDIT TO HOLDERS OF QUALIFIED ZONE ACADEMY BONDS.
(a) * * *
* * * * * * *
(e) Limitation on Amount of Bonds Designated.--
(1) National limitation.--There is a national zone
academy bond limitation for each calendar year. Such
limitation is $400,000,000 for 1998, 1999, [2000, and
2001] 2000, 2001, 2002, and 2003, and, except as
provided in paragraph (4), zero thereafter.
* * * * * * *
CHAPTER 3--WITHHOLDING OF TAX ON NONRESIDENT ALIENS AND FOREIGN
CORPORATIONS
* * * * * * *
Subchapter A--Nonresident Aliens and Foreign Corporations
* * * * * * *
SEC. 1445. WITHHOLDING OF TAX ON DISPOSITIONS OF UNITED STATES REAL
PROPERTY INTERESTS.
(a) * * *
* * * * * * *
(e) Special Rules Relating to Distributions, Etc., By
Corporations, Partnerships, Trusts, or Estates.--
(1) Certain domestic partnerships, trusts, and
estates.--In the case of any disposition of a United
States real property interest as defined in section
897(c) (other than a disposition described in paragraph
(4) or (5)) by a domestic partnership, domestic trust,
or domestic estate, such partnership, the trustee of
such trust, or the executor of such estate (as the case
may be) shall be required to deduct and withhold under
subsection (a) a tax equal to 35 percent (or, to the
extent provided in regulations, [20] 18 percent) of the
gain realized to the extent such gain--
(A) * * *
* * * * * * *
CHAPTER 6--CONSOLIDATED RETURNS
* * * * * * *
Subchapter B--Related Rules
* * * * * * *
PART II--CERTAIN CONTROLLED CORPORATIONS
* * * * * * *
SEC. 1561. LIMITATIONS ON CERTAIN MULTIPLE TAX BENEFITS IN THE CASE OF
CERTAIN CONTROLLED CORPORATIONS.
(a) General Rule.--The component members of a controlled
group of corporations on a December 31 shall, for their taxable
years which include such December 31, be limited for purposes
of this subtitle to--
(1) * * *
(2) one $250,000 ($150,000 if any component member is
a corporation described in section 535(c)(2)(B) amount
for purposes of computing the accumulated earnings
credit under section 535(c)(2) and (3), and
(3) one $40,000 exemption amount for purposes of
computing the amount of the minimum tax[, and].
[(4) one $2,000,000 amount for purposes of computing
the tax imposed by section 59A.]
The amounts specified in paragraph (1), the amount specified in
paragraph (3), and the amount specified in paragraph (4) shall
be divided equally among the component members of such group on
such December 31 unless all of such component members consent
(at such time and in such manner as the Secretary shall by
regulations prescribe) to an apportionment plan providing for
an unequal allocation of such amounts. The amounts specified in
paragraph (2) shall be divided equally among the component
members of such group on such December 31 unless the Secretary
prescribes regulations permitting an unequal allocation of such
amounts. Notwithstanding paragraph (1), in applying the last 2
sentences of section 11(b)(1) to such component members, the
taxable income of all such component members shall be taken
into account and any increase in tax under such last sentence
shall be divided among such component members in the same
manner as amounts under paragraph (1). [In applying section
55(d)(3), the alternative minimum taxable income of all
component members shall be taken into account and any decrease
in the exemption amount shall be allocated to the component
members in the same manner as under paragraph (3).]
* * * * * * *
Subtitle C--Employment Taxes
* * * * * * *
CHAPTER 23--FEDERAL UNEMPLOYMENT TAX ACT
* * * * * * *
SEC. 3304. APPROVAL OF STATE LAWS.
(a) Requirements.--The Secretary of Labor shall approve any
State law submitted to him, within 30 days of such submission,
which he finds provides that--
(1) * * *
* * * * * * *
(4) all money withdrawn from the unemployment fund of
the State shall be used solely in the payment of
unemployment compensation, exclusive of expenses of
administration, and for refunds of sums erroneously
paid into such fund and refunds paid in accordance with
the provisions of section 3305(b); except that--
(A) * * *
(B) the amounts specified by section
903(c)(2) or 903(d)(4) of the Social Security
Act may, subject to the conditions prescribed
in such section, be used for expenses incurred
by the State for administration of its
unemployment compensation law and public
employment offices;
* * * * * * *
SEC. 3306. DEFINITIONS.
(a) * * *
* * * * * * *
(f) Unemployment Fund.--For purposes of this chapter, the
term ``unemployment fund'' means a special fund, established
under a State law and administered by a State agency, for the
payment of compensation. Any sums standing to the account of
the State agency in the Unemployment Trust Fund established by
section 904 of the Social Security Act, as amended (42 U.S.C.
1104), shall be deemed to be a part of the unemployment fund of
the State, and no sums paid out of the Unemployment Trust Fund
to such State agency shall cease to be a part of the
unemployment fund of the State until expended by such State
agency. An unemployment fund shall be deemed to be maintained
during a taxable year only if throughout such year, or such
portion of the year as the unemployment fund was in existence,
no part of the moneys of such fund was expended for any purpose
other than the payment of compensation (exclusive of expenses
of administration) and for refunds of sums erroneously paid
into such fund and refunds paid in accordance with the
provisions of section 3305(b); except that--
(1) * * *
(2) the amounts specified by section 903(c)(2) or
903(d)(4) of the Social Security Act may, subject to
the conditions prescribed in such section, be used for
expenses incurred by the State for administration of
its unemployment compensation law and public employment
offices;
* * * * * * *
Subtitle F--Procedure and Administration
* * * * * * *
CHAPTER 65--ABATEMENTS, CREDITS, AND REFUNDS
* * * * * * *
Subchapter B--Rules for Special Application
* * * * * * *
SEC. 6425. ADJUSTMENT OF OVERPAYMENT OF ESTIMATED INCOME TAX BY
CORPORATION.
(a) * * *
* * * * * * *
(c) Definitions.--For purposes of this section and section
6655(h) (relating to excessive adjustment)--
(1) The term ``income tax liability'' means the
excess of--
[(A) The sum of--
[(i) the tax imposed by section 11 or
1201(a), or subchapter L of chapter 1,
whichever is applicable,
[(ii) the tax imposed by section 55,
plus
[(iii) the tax imposed by section
59A, over]
(A) the tax imposed by section 11 or 1201(a),
or subchapter L of chapter 1, whichever is
applicable, over
* * * * * * *
SEC. 6428. ACCELERATION OF 10 PERCENT INCOME TAX RATE BRACKET BENEFIT
FOR 2001.
(a) * * *
* * * * * * *
(d) Special Rules.--
(1) Coordination with advance refunds of credit.--
(A) In general.--The amount of credit which
would (but for this paragraph) be allowable
under this section shall be reduced (but not
below zero) by the aggregate refunds and
credits made or allowed to the taxpayer under
[subsection (e)] subsections (e) and (f). Any
failure to so reduce the credit shall be
treated as arising out of a mathematical or
clerical error and assessed according to
section 6213(b)(1).
(B) Joint returns.--In the case of a refund
or credit made or allowed under [subsection
(e)] subsection (e) or (f) with respect to a
joint return, half of such refund or credit
shall be treated as having been made or allowed
to each individual filing such return.
* * * * * * *
(e) Advance Refunds of Credit Based on Prior Year Data.--
(1) * * *
* * * * * * *
(3) Timing of payments.--In the case of any
overpayment attributable to this subsection, the
Secretary shall, subject to the provisions of this
title, refund or credit such overpayment as rapidly as
possible and, to the extent practicable, before October
1, 2001. No refund or credit shall be made or allowed
under this subsection after [December 31, 2001] the
date of the enactment of the Economic Security and
Recovery Act of 2001.
* * * * * * *
(f) Supplemental Rebate.--
(1) In general.--Each individual who was an eligible
individual for such individual's first taxable year
beginning in 2000 and who, before October 16, 2001,
filed a return of tax imposed by subtitle A for such
taxable year shall be treated as having made a payment
against the tax imposed by chapter 1 for such first
taxable year in an amount equal to the supplemental
refund amount for such taxable year.
(2) Supplemental refund amount.--For purposes of this
subsection, the supplemental refund amount is an amount
equal to the excess (if any) of--
(A)(i) $600 in the case of taxpayers to whom
section 1(a) applies,
(ii) $500 in the case of taxpayers to whom
section 1(b) applies, and
(iii) $300 in the case of taxpayers to whom
subsections (c) or (d) of section 1 applies,
over
(B) the taxpayer's advance refund amount
under subsection (e).
(3) Timing of payments.--In the case of any
overpayment attributable to this subsection, the
Secretary shall, subject to the provisions of this
title, refund or credit such overpayment as rapidly as
possible.
(4) No interest.--No interest shall be allowed on any
overpayment attributable to this subsection.
* * * * * * *
CHAPTER 68--ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE
PENALTIES
* * * * * * *
Subchapter A--Additions to the Tax, Additional Amounts
* * * * * * *
PART I--GENERAL PROVISIONS
* * * * * * *
SEC. 6655. FAILURE BY CORPORATION TO PAY ESTIMATED INCOME TAX.
(a) * * *
* * * * * * *
(e) Lower Required Installment Where Annualized Income
Installment or Adjusted Seasonal Installment is Less Than
Amount Determined Under Subsection (d).--
(1) * * *
(2) Determination of annualized income installment.--
(A) In general.--In the case of any required
installment, the annualized income installment
is the excess (if any) of--
(i) an amount equal to the applicable
percentage of the tax for the taxable
year computed by placing on an
annualized basis the taxable income[,
alternative minimum taxable income, and
modified alternative minimum taxable
income]--
(I) for the first 3 months of
the taxable year, in the case
of the 1st required
installment,
(II) for the first 3 months
of the taxable year, in the
case of the 2nd required
installment,
(III) for the first 6 months
of the taxable year in the case
of the 3rd required
installment, and
(IV) for the first 9 months
of the taxable year, in the
case of the 4th required
installment, over
(ii) the aggregate amount of any
prior required installments for the
taxable year.
(B) Special rules.--For purposes of this
paragraph--
(i) Annualization.--The taxable
income[, alternative minimum taxable
income, and modified alternative
minimum taxable income] shall be placed
on an annualized basis under
regulations prescribed by the
Secretary.
* * * * * * *
[(iii) Modified alternative minimum
taxable income.--The term ``modified
alternative minimum taxable income''
has the meaning given to such term by
section 59A(b).]
* * * * * * *
(g) Definitions and Special Rules.--
(1) Tax.--For purposes of this section, the term
``tax'' means the excess of--
[(A) the sum of--
[(i) the tax imposed by section 11 or
1201(a), or subchapter L of chapter 1,
whichever applies,
[(ii) the tax imposed by section 55,
[(iii) the tax imposed by section
59A, plus
[(iv) the tax imposed by section 887,
over]
(A) the sum of--
(i) the tax imposed by section 11 or
1201(a), or subchapter L of chapter 1,
whichever applies, plus
(ii) the tax imposed by section 887,
over
* * * * * * *
CHAPTER 77--MISCELLANEOUS PROVISIONS
* * * * * * *
SEC. 7518. TAX INCENTIVES RELATING TO MERCHANT MARINE CAPITAL
CONSTRUCTION FUNDS.
(a) * * *
* * * * * * *
(g) Tax Treatment of Nonqualified Withdrawals.--
(1) * * *
* * * * * * *
(6) Nonqualified withdrawals taxed at highest
marginal rate.--
(A) In general.--In the case of any taxable
year for which there is a nonqualified
withdrawal (including any amount so treated
under paragraph (5)), the tax imposed by
chapter 1 shall be determined--
(i) * * *
* * * * * * *
With respect to the portion of any nonqualified
withdrawal made out of the capital gain account
during a taxable year to which section 1(h) or
1201(a) applies, the rate of tax taken into
account under the preceding sentence shall not
exceed [20] 18 percent (34 percent in the case
of a corporation).
* * * * * * *
CHAPTER 78--DISCOVERY OF LIABILITY AND ENFORCEMENT OF TITLE
* * * * * * *
Subchapter D--Possessions
* * * * * * *
SEC. 7652. SHIPMENTS TO THE UNITED STATES.
(a) * * *
* * * * * * *
(f) Limitation on Cover Over of Tax on Distilled Spirits.--
For purposes of this section, with respect to taxes imposed
under section 5001 or this section on distilled spirits, the
amount covered into the treasuries of Puerto Rico and the
Virgin Islands shall not exceed the lesser of the rate of--
(1) $10.50 ($13.25 in the case of distilled spirits
brought into the United States after June 30, 1999, and
before January 1, [2002] 2004), or
* * * * * * *
Subtitle K--Group Health Plan Requirements
* * * * * * *
CHAPTER 100--GROUP HEALTH PLAN REQUIREMENTS
* * * * * * *
Subchapter B--Other Requirements
* * * * * * *
SEC. 9812. PARITY IN THE APPLICATION OF CERTAIN LIMITS TO MENTAL HEALTH
BENEFITS.
(a) * * *
* * * * * * *
(f) Sunset.--This section shall no apply to benefits for
services furnish on or after September 30, [2001] 2003.
* * * * * * *
----------
SECTION 607 OF THE MERCHANT MARINE ACT, 1936
Sec. 607. (a) * * *
* * * * * * *
(h) Tax Treatment of Nonqualified Withdrawals.
(1) * * *
* * * * * * *
(6) Nonqualified withdrawals taxed at highest
marginal rate.--
(A) In general.--In the case of any taxable
year for which there is a nonqualified
withdrawal (including any amount so treated
under paragraph (5)), the tax imposed by
chapter 1 of the Internal Revenue Code of 1986
shall be determined--
(i) * * *
* * * * * * *
With respect to the portion of any nonqualified
withdrawal made out of the capital gain account
during a taxable year to which section l(h) or
1201(a) of such Code applies, the rate of tax
taken into account under the preceding sentence
shall not exceed [20] 18 percent (34 percent in
the case of a corporation).
* * * * * * *
----------
TAXPAYER RELIEF ACT OF 1997
* * * * * * *
TITLE III--SAVINGS AND INVESTMENT INCENTIVES
* * * * * * *
Subtitle B--Capital Gains
SEC. 311. MAXIMUM CAPITAL GAINS RATES FOR INDIVIDUALS.
(a) * * *
* * * * * * *
[(e) Election To Recognize Gain on Assets Held on January 1,
2001.--For purposes of the Internal Revenue Code of 1986--
[(1) In general.--A taxpayer other than a corporation
may elect to treat--
[(A) any readily tradable stock (which is a
capital asset) held by such taxpayer on January
1, 2001, and not sold before the next business
day after such date, as having been sold on
such next business day for an amount equal to
its closing market price on such next business
day (and as having been reacquired on such next
business day for an amount equal to such
closing market price), and
[(B) any other capital asset or property used
in the trade or business (as defined in section
1231(b) of the Internal Revenue Code of 1986)
held by the taxpayer on January 1, 2001, as
having been sold on such date for an amount
equal to its fair market value on such date
(and as having been reacquired on such date for
an amount equal to such fair market value).
[(2) Treatment of gain or loss.--
[(A) Any gain resulting from an election
under paragraph (1) shall be treated as
received or accrued on the date the asset is
treated as sold under paragraph (1) and shall
be recognized notwithstanding any provision of
the Internal Revenue Code of 1986.
[(B) Any loss resulting from an election
under paragraph (1) shall not be allowed for
any taxable year.
[(3) Election.--An election under paragraph (1) shall
be made in such manner as the Secretary of the Treasury
or his delegate may prescribe and shall specify the
assets for which such election is made. Such an
election, once made with respect to any asset, shall be
irrevocable. Such an election shall not apply to any
asset which is disposed of (in a transaction in which
gain or loss is recognized in whole or in part) before
the close of the 1-year period beginning on the date
that the asset would have been treated as sold under
such election.
[(4) Readily tradable stock.--For purposes of this
subsection, the term ``readily tradable stock'' means
any stock which, as of January 1, 2001, is readily
tradable on an established securities market or
otherwise.]
* * * * * * *
TITLE IX--MISCELLANEOUS PROVISIONS
* * * * * * *
Subtitle G--Other Provisions
* * * * * * *
SEC. 971. EXEMPTION OF THE INCREMENTAL COST OF A CLEAN FUEL VEHICLE
FROM THE LIMITS ON DEPRECIATION FOR VEHICLES.
(a) * * *
* * * * * * *
(b) Effective Date.--The amendments made by this section
shall apply to property placed in service after the date of
enactment of this Act [and before January 1, 2005].
* * * * * * *
TITLE X--REVENUES
* * * * * * *
Subtitle D--Excise and Employment Tax Provisions
* * * * * * *
SEC. 1032. KEROSENE TAXED AS DIESEL FUEL.
(a) * * *
* * * * * * *
(f) Effective Dates.--
(1) Except as provided in paragraph (2), the
amendments made by this section shall take effect on
July 1, 1998.
(2) The amendment made by subsection (d) shall take
effect on January 1, [2002] 2004.
* * * * * * *
----------
SOCIAL SECURITY ACT
* * * * * * *
TITLE III--GRANTS TO STATES FOR UNEMPLOYMENT COMPENSATION
ADMINISTRATION
* * * * * * *
provisions of state laws
Sec. 303. (a) The Secretary of Labor shall make no
certification for payment to any State unless he finds that the
law of such State, approved by the Secretary of Labor under the
Federal Unemployment Tax Act, includes provision for--
(1) * * *
* * * * * * *
(5) Expenditure of all money withdrawn from an
unemployment fund of such State, in the payment of
unemployment compensation, exclusive of expenses of
administration, and for refunds of sums erroneously
paid into such fund and refunds paid in accordance with
the provisions of 3305(b) of the Federal Unemployment
Tax Act: Provided, That an amount equal to the amount
of employee payments in to the unemployment fund of a
State may be used in the payment of cash benefits to
individuals with respect to their disability, exclusive
of expenses of administration: Provided further, That
the amounts specified by section 903(c)(2) or 903(d)(4)
may, subject to the conditions prescribed in such
section, be used for expenses incurred by the State for
administration of its unemployment compensation law and
public employment offices: Provided further, That
nothing in this paragraph shall be construed to
prohibit deducting an amount from unemployment
compensation otherwise payable to an individual and
using the amount so deducted to pay for health
insurance, or the withholding of Federal, State, or
local individual income tax, if the individual elected
to have such deduction made and such deduction was made
under a program approved by the Secretary of Labor:
Provided further, That amounts may be deducted from
unemployment benefits and used to repay overpayments as
provided in subsection (g): Provided further, That
amounts may be withdrawn for the payment of short-time
compensation under a plan approved by the Secretary of
Labor: Provided further, That amounts may be withdrawn
for the payment of allowances under a self-employment
assistance program (as defined in section 3306(t) of
the Internal Revenue Code of 1986); and
* * * * * * *
TITLE IX--MISCELLANEOUS PROVISIONS RELATING TO EMPLOYMENT SECURITY
* * * * * * *
amounts transferred to state accounts
In General
Sec. 903. (a)(1) * * *
* * * * * * *
[(3)(A) Notwithstanding any other provision of this section,
for purposes of carrying out this subsection with respect to
any excess amount (referred to in paragraph (1)) remaining in
the employment security administration account as of the close
of fiscal year 1999, 2000, or 2001, such amount shall--
[(i) to the extent of any amounts not in excess of
$100,000,000, be subject to subparagraph (B), and
[(ii) to the extent of any amounts in excess of
$100,000,000, be subject to subparagraph (C).
[(B) Paragraphs (1) and (2) shall apply with respect to any
amounts described in subparagraph (A)(i), except that--
[(i) in carrying out the provisions of paragraph
(2)(B) with respect to such amounts (to determine the
portion of such amounts which is to be allocated to a
State for a succeeding fiscal year), the ratio to be
applied under such provisions shall be the same as the
ratio that--
[(I) the amount of funds to be allocated to
such State for such fiscal year pursuant to the
base allocation formula under title III, bears
to
[(II) the total amount of funds to be
allocated to all States for such fiscal year
pursuant to the base allocation formula under
title III,
as determined by the Secretary of Labor, and
[(ii) the amounts allocated to a State pursuant to
this subparagraph shall be available to such State,
subject to the last sentence of subsection (c)(2).
Nothing in this paragraph shall preclude the application of
subsection (b) with respect to any allocation determined under
this subparagraph.
[(C) Any amounts described in clause (ii) of subparagraph (A)
(remaining in the employment security administration account as
of the close of any fiscal year specified in such subparagraph)
shall, as of the beginning of the succeeding fiscal year,
accrue to the Federal unemployment account, without regard to
the limit provided in section 902(a).]
* * * * * * *
Use of Transferred Amounts
(c)(1) * * *
(2) A State may, pursuant to a specific appropriation made by
the legislative body of the State, use money withdrawn from its
account in the payment of expenses incurred by it for the
administration of its unemployment compensation law and public
employment offices if and only if--
(A) * * *
* * * * * * *
[Any amount allocated to a State under this section for fiscal
year 2000, 2001, or 2002 may be used by such State only to pay
expenses incurred by it for the administration of its
unemployment compensation law, and may be so used by it without
regard to any of the conditions prescribed in any of the
preceding provisions of this paragraph.]
* * * * * * *
Special Transfer in Fiscal Year 2002
(d)(1) The Secretary of the Treasury shall transfer (as of
the date determined under paragraph (5)(A)) from the Federal
unemployment account to the account of each State in the
Unemployment Trust Fund the amount determined with respect to
such State under paragraph (2).
(2) The amount to be transferred under this subsection to a
State account shall (as determined by the Secretary of Labor
and certified by such Secretary to the Secretary of the
Treasury) be equal to--
(A) the amount which would have been required to have
been transferred under this section to such account at
the beginning of fiscal year 2002 if section 402(a)(1)
of the Economic Security and Recovery Act of 2001 had
been enacted before the close of fiscal year 2001,
minus
(B) the amount which was in fact transferred under
this section to such account at the beginning of fiscal
year 2002.
(3)(A) Except as provided in paragraph (4), amounts
transferred to a State account pursuant to this subsection may
be used only in the payment of cash benefits--
(i) to individuals with respect to their
unemployment, and
(ii) which are allowable under subparagraph (B) or
(C).
(B)(i) At the option of the State, cash benefits under this
paragraph may include amounts which shall be payable as regular
or additional compensation for individuals eligible for regular
compensation under the unemployment compensation law of such
State.
(ii) Any additional compensation under clause (i) may not be
taken into account for purposes of any determination relating
to the amount of any extended compensation for which an
individual might be eligible.
(C)(i) At the option of the State, cash benefits under this
paragraph may include amounts which shall be payable to 1 or
more categories of individuals not otherwise eligible for
regular compensation under the unemployment compensation law of
such State.
(ii) The benefits paid under this subparagraph to any
individual may not, for any period of unemployment, exceed the
maximum amount of regular compensation authorized under the
unemployment compensation law of such State for that same
period, plus any additional benefits (described in subparagraph
(B)(i)) which could have been paid with respect to that amount.
(D) Amounts transferred to a State account under this
subsection may be used in the payment of cash benefits to
individuals only for weeks of unemployment--
(i) beginning after the date of enactment of this
subsection, and
(ii) ending on or before March 11, 2003.
(4) Amounts transferred to a State account under this
subsection may be used for the administration of its
unemployment compensation law and public employment offices
(including in connection with benefits described in paragraph
(3) and any recipients thereof), subject to the same conditions
as set forth in subsection (c)(2) (excluding subparagraph (B)
thereof, and deeming the reference to ``subsections (a) and
(b)'' in subparagraph (D) thereof to include this subsection).
(5) Transfers under this subsection--
(A) shall be made on such date as the Secretary of
Labor (in consultation with the Secretary of the
Treasury) shall determine, but in no event later than
10 days after the date of enactment of this subsection,
and
(B) may, notwithstanding any other provision of this
subsection, be made only to the extent that they do not
to exceed--
(i) the balance in the Federal unemployment
account as of the date determined under
subparagraph (A), or
(ii) the total amount that was transferred
under this section to the Federal unemployment
account at the beginning of fiscal year 2002,
whichever is less.
* * * * * * *
TITLE XX--BLOCK GRANTS TO STATES FOR SOCIAL SERVICES
* * * * * * *
SEC. 2008. GRANTS FOR HEALTH CARE ASSISTANCE FOR THE UNEMPLOYED.
(a) Funding.--For purposes of section 2003, the amount
specified in section 2003(c) for fiscal year 2002 is increased
by $3,000,000,000.
(b) Use of Funds.--Notwithstanding any other provision of
this title, to the extent that an amount paid to a State under
section 2002 is attributable to funds made available by reason
of subsection (a) of this section--
(1) the State shall use the amount to assist an
unemployed individual who is not eligible for Federal
health coverage to purchase health care coverage for
the individual or any member of the family of the
individual who is not so eligible; and
(2) the amount--
(A) shall be used to supplement, not
supplant, any other Federal, State, or local
funds that are used for the provision of health
care coverage; and
(B) may not be included in determining the
amount of non-Federal contributions required
under any program.
(c) Definitions.--In this section:
(1) Unemployed individual.--The term ``unemployed
individual'' means an individual who--
(A) is without a job (determined in
accordance with the criteria used by the Bureau
of Labor Statistics of the Department of Labor
in defining individuals as unemployed);
(B) is seeking and available for work; and
(C) has or had a benefit year (within the
meaning of section 205 of the Federal-State
Extended Unemployment Compensation Act of 1970)
beginning on or after January 1, 2001.
(2) Federal health coverage.--
(A) In general.--Subject to subparagraph (B),
the term ``Federal health coverage'' means
coverage under any medical care program
described in--
(i) title XVIII, XIX, or XXI of this
Act (other than under section 1928);
(ii) chapter 55 of title 10, United
States Code;
(iii) chapter 17 of title 38, United
States Code;
(iv) chapter 89 of title 5, United
States Code (other than coverage which
is comparable to continuation coverage
under section 4980B of the Internal
Revenue Code of 1986); or
(v) the Indian Health Care
Improvement Act.
(B) Special rule.--Such term does not include
coverage under a qualified long-term care
insurance contract.
* * * * * * *
----------
VII. DISSENTING VIEWS
Democrats support a balanced, fiscally-responsible economic
recovery package. It should provide vital relief for laid-off
workers and temporary tax cuts for businesses and individuals
that will directly stimulate the economy. It should leave room
for essential security priorities. It should not hurt our
ability to restore Social Security and Medicare surpluses and
rebuild long-term confidence in our economy.
A bipartisan stimulus package should help those people in
need because of the economic downturn. Hundreds of thousands of
Americans have lost their jobs in recent weeks and, as a
result, many lack health insurance and unemployment benefits.
They are worried about basic needs like paying the rent and
feeding their families. They care about both their personal and
their economic security.
The American people are depending on Members of Congress to
cooperate and work with each other. They should expect and get
no less. While we are fighting a war against terrorism, we can
not afford to fight a political war against each other.
The Democrats will continue, in every possible way, to
cooperate with our Republican friends. There already have been
some post-September 11th bipartisan agreements, such as the
Cardin-Houghton Unemployment Insurance bill. In contrast,
Committee Chairman Thomas has spurned attempts at bipartisan
cooperation in developing an economic stimulus bill. The
Committee bill neither addresses the priorities of the House
and Senate Democrats, House and Senate Republicans, or the
President, based on his comments. Chairman Thomas has forced a
partisan debate by preparing unilaterally his own version of an
economic stimulus package (one that both the Committee
Democrats and Committee Republicans did not see until shortly
before the markup.)
We are very concerned that the Committee bill violates the
bipartisan principles for economic stimulus signed by the House
and Senate budget committee Chairmen and Ranking Members and
supported by many Members of both Congressional bodies. This
was the basis of our ongoing bipartisan discussions and
guidance for how we would act quickly to develop the economic
stimulus package for which all Americans are waiting. That
agreement stipulates that the stimulus package should be
temporary and have immediate, short-term stimulus impact; be
directly related to economic stimulus and relief; and be
disciplined in size and paid for over time through offsets. The
Committee bill does not fulfill these important bipartisan
principles. As a result, the Committee's bill does not provide
for an effective economic stimulus package which we can all
support.
The Committee bill is not temporary. The provisions do not
provide ``economic stimulus'' along the lines recommended by
Federal Reserve Chairman Greenspan. Instead of temporary tax
cuts, many of the Committee tax provisions are permanent and
provide little or nothing in terms of stimulus within the next
15 months. Further, the Committee bill will not help rebuild
long-term confidence in the economy. It creates new budgetary
pressures which will threaten efforts to strengthen Social
Security and Medicare, pay down debt, and restore economic
confidence.
The Committee bill is not directly related to economic
stimulus and relief. The proposal's tax cuts do not maximize
consumer demand by focusing on those low- and middle-income
households most likely to spend the money. The lion's share of
individual tax cuts in the Committee bill goes to the wealthy,
and many of the business tax cuts go to businesses that are
least in need of relief. The Committee bill includes permanent
tax cuts that have nothing to do with the terrorist attack or
its economic aftermath. Rather, the bill provides special
interests with tax cuts they have wanted for years.
The Committee bill will cost nearly $160 billion over the
next ten years and is not paid for through offsets. The bill
ignores the need for out-year offsets to make up over time for
the cost of near-term economic stimulus. This is not fiscally
responsible. Our economic stimulus package should be focused
and be paid for through short- and long-term revenue offsets.
There are provisions about which the Democrats feel very
strongly. An economic stimulus package must include measures
that benefits all Americans in need. Among them are proposals
to address our Nation's security concerns, to expand
unemployment insurance benefits, and to make health insurance
available to those who have lost their jobs.
The Committee bill does not allow us to address Americans'
security concerns. The bill puts tax cuts first. Such an
approach does not leave room for vital improvements in the
security of airports, seaports, dams, power plants, public
buildings, roads, railroads, bridges and tunnels throughout the
country. The American public has spoken loudly and clearly that
its priority is to significantly increase security in the U.S.
and to protect American families.
The Committee bill fails to guarantee any unemployed worker
increased or extended unemployment compensation. In fact, the
bill's special Reed Act transfer of funding to the states
ensures that almost no action will occur over the next six
months to help jobless Americans because state legislatures
will take at least that long to meet and decide how to allocate
the funding. Additionally, there is nothing in the legislation
that would prevent states from using the Reed Act money to
replace state funding for unemployment benefits--meaning the
net result could be no new assistance for displaced workers.
The Committee bill does not protect newly unemployed
individuals and their families and other affected by the
terrorist attacks from the very real danger that they will lose
their health insurance and join the ranks of the nearly 40
million uninsured Americans. Many unemployed are eligible to
stay on their former employers' insurance plans, but at a cost
of 102 percent of the premium. (In 2002, this is projected to
average $600 per month, or $7,200 per year.) Unfortunately, few
can afford to maintain this coverage under current law. The
Committee bill fails to provide meaningful assistance with
health insurance. Use of the Social Services Block Grant will
needlessly delay distribution of funds, and the Committee
allocation of $3 billion offers too little for too few.
The most effective and efficient manner by which to provide
quick, short-term assistance with health insurance coverage is
to build on existing programs, namely a subsidy for COBRA
coverage for those who are eligible and a temporary expansion
of Medicaid and CHIP for those who are not.
Importantly, the Committee bill is not bipartisan. This
means the bill will not be enacted into law. There is no excuse
for unilateral action by the Ways and Means Committee Chairman
at a time when the House, the Senate, and the President are
meeting on a bipartisan basis to hammer out a meaningful
economic stimulus package. Unfortunately, the Committee bill
may be effective in ``stimulating increased campaign
contributions,'' but not effective in ``stimulating the
economy.''
The several bipartisan meetings held during the past weeks
among the bicameral leaders of both tax-writing Committees and
the Administration were very encouraging. It is unfortunate
that the Committee Chairman decided to pull out and act before
the bipartisan process was complete. However, it is not too
late. Our House leaders, Democrats and Republicans, are
committed to moving forward a bipartisan economic stimulus
bill. We will continue to follow their lead.
We look forward to the development of an effective,
bipartisan package to stimulate our economy and to address the
needs of Americans after the horrific events of September 11,
2001. One thing is clear: the bipartisan bill will not be H.R.
3090. It does not address what Americans need and want.
Charles B. Rangel.
William J. Coyne.
Jim McDermott.
John Lewis.
Sander M. Levin.
John Tanner.
Earl Pomeroy.
Michael R. McNulty.
Pete Stark.
Robert T. Matsui.
Gerald D. Kleczka.
Xavier Becerra.
Ben Cardin.
William J. Jefferson.
Richard E. Neal.
Lloyd Doggett.
Karen L. Thurman.