DESCRIPTION OF CHAIRMAN’S MARK

RELATING TO EXPIRING TAX PROVISIONS

Scheduled for Markup

by the

SENATE COMMITTEE ON FINANCE

on October 8, 1999

Prepared by the Staff

of the

JOINT COMMITTEE ON TAXATION

October 5, 1999

JCX-69-99
(i)

CONTENTS

Page

INTRODUCTION .......................................................... 1

I. EXTENSION OF EXPIRED AND EXPIRING PROVISIONS ................ 2

A. Extend Minimum Tax Relief for Individuals ............................ 2

B. Extend Exclusion for Employer-Provided Educational Assistance .......... 3

C. Extend Research and Experimentation Credit and Increase in the Rates

for the Alternative Incremental Research Credit ......................... 4

D. Extend Exceptions under Subpart F for Active Financing Income .......... 7

E. Extend Suspension of Net Income Limitation on Percentage Depletion

from Marginal Oil and Gas Wells ..................................... 9

F. Extend the Work Opportunity Tax Credit .............................. 10

G. Extend the Welfare-to-Work Tax Credit ............................... 10

H. Extend and Modify Tax Credit for Electricity Produced by Wind and

Closed-Loop Biomass Facilities ...................................... 11

I. Extend Exemption From Diesel Dyeing Requirement for Certain Areas

in Alaska ......................................................... 13

J. Expand and Extend Brownfields Environmental Remediation ............. 14

II. REVENUE OFFSET FOR FISCAL YEAR 2000 ........................... 15

A. Modification of Individual Estimated Tax Safe Harbor .................... 15
1

 This document may be cited as follows: Joint Committee on Taxation, Description of

Chairman’s Mark Relating to Expiring Tax Provisions (JCX-69-99), October 5, 1999.

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INTRODUCTION

This document,1 prepared by the staff of the Joint Committee on Taxation, provides a

description of the Chairman’s Mark relating to expiring tax provisions scheduled for markup in

the Senate Committee on Finance on October 8, 1999.
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I. EXTENSION OF EXPIRED AND EXPIRING PROVISIONS

A. Extend Minimum Tax Relief for Individuals

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, the

credit for interest on certain home mortgages, the HOPE Scholarship and Lifetime Learning

credits, and the D.C. homebuyer’s credit). Except for taxable years beginning during 1998, these

credits 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. For taxable years beginning during 1998, these credits are allowed to the extent of the full

amount of the individual’s regular tax (without regard to the tentative minimum 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 in the case of married individuals filing a joint return and surviving

spouses; (2) $33,750 in the case of other unmarried individuals; and (3) $22,500 in the case of

married individuals filing a separate return, estates and trusts. 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.

For families with three or more qualifying children, a refundable child credit is provided,

up to the amount by which the liability for social security taxes exceeds the amount of the earned

income credit (sec. 24(d)). For taxable years beginning after 1998, the refundable child credit is

reduced by the amount of the individual’s minimum tax liability (i.e., the amount by which the

tentative minimum tax exceeds the regular tax liability). 

Description of Proposal

The proposal would allow an individual to offset the entire regular tax liability (without

regard to the minimum tax) by the personal nonrefundable credits.

The proposal would also repeal the provision that reduces the refundable child credit by

the amount of an individual’s minimum tax.
2

 These rules also apply in the event that section 127 expires and is not reinstated. 

3

 In the case of an employee, education expenses (if not reimbursed by the employer)

may be claimed as an itemized deduction only if such expenses, along with other miscellaneous

deductions, exceed 2 percent of the taxpayer's AGI. The 2-percent floor limitation is disregarded

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Effective Date

The proposal would be effective for taxable years beginning after December 31, 1998.

B. Extend Exclusion for Employer-Provided Educational Assistance

Present Law

Educational expenses paid by an employer for its employees are generally deductible to

the employer.

Employer-paid educational expenses are excludable from the gross income and wages of

an employee if provided under a section 127 educational assistance plan or if the expenses qualify

as a working condition fringe benefit under section 132. Section 127 provides an exclusion of

$5,250 annually for employer-provided educational assistance. The exclusion does not apply to

graduate courses. The exclusion for employer-provided educational assistance expires with

respect to courses beginning on or after June 1, 2000.

In order for the exclusion to apply, certain requirements must be satisfied. The educational

assistance must be provided pursuant to a separate written plan of the employer. The educational

assistance program must not discriminate in favor of highly compensated employees. In addition,

not more than 5 percent of the amounts paid or incurred by the employer during the year for

educational assistance under a qualified educational assistance plan can be provided for the class

of individuals consisting of more than 5-percent owners of the employer (and their spouses and

dependents).

Educational expenses that do not qualify for the section 127 exclusion may be excludable

from income as a working condition fringe benefit.2 In general, education qualifies as a working

condition fringe benefit if the employee could have deducted the education expenses under

section 162 if the employee paid for the education. In general, education expenses are deductible

by an individual under section 162 if the education (1) maintains or improves a skill required in a

trade or business currently engaged in by the taxpayer, or (2) meets the express requirements of

the taxpayer's employer, applicable law or regulations imposed as a condition of continued

employment. However, education expenses are generally not deductible if they relate to certain

minimum educational requirements or to education or training that enables a taxpayer to begin

working in a new trade or business.3
in determining whether an item is excludable as a working condition fringe benefit. 

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Description of Proposal

The proposal would make the exclusion for employer-provided educational assistance

permanent with respect to both graduate and undergraduate courses. The exclusion would apply

to graduate-level courses beginning in 2000.

Effective Date

The provision would generally be effective with respect to courses beginning after May 31,

2000. The provision would be effective with respect to graduate-level courses beginning after

December 31, 1999.

C. Extend Research and Experimentation Credit and Increase 

in the Rates for the Alternative Incremental Research Credit

Present Law

General rule

Section 41 provides for a research tax credit equal to 20 percent of the amount by which a

taxpayer's qualified research expenditures for a taxable year exceeded its base amount for that

year. The research tax credit expired and generally does not apply to amounts paid or incurred

after June 30, 1999.

A 20-percent research tax credit also applied to the excess of (1) 100 percent of corporate

cash expenditures (including grants or contributions) paid for basic research conducted by

universities (and certain nonprofit scientific research organizations) over (2) the sum of (a) the

greater of two minimum basic research floors plus (b) an amount reflecting any decrease in

nonresearch giving to universities by the corporation as compared to such giving during a

fixed-base period, as adjusted for inflation. This separate credit computation is commonly referred

to as the “university basic research credit” (see sec. 41(e)).

Computation of allowable credit

Except for certain university basic research payments made by corporations, the research

tax credit applies only to the extent that the taxpayer's qualified research expenditures for the

current taxable year exceed its base amount. The base amount for the current year generally is

computed by multiplying the taxpayer's “fixed-base percentage” by the average amount of the

taxpayer's gross receipts for the four preceding years. If a taxpayer both incurred qualified

research expenditures and had gross receipts during each of at least three years from 1984 through
4

 A special rule is designed to gradually recompute a start-up firm's fixed-base percentage

based on its actual research experience. Under this special rule, a start-up firm will be assigned a

fixed-base percentage of 3 percent for each of its first five taxable years after 1993 in which it

incurs qualified research expenditures. In the event that the research credit is extended beyond

the scheduled expiration date, a start-up firm's fixed-based percentage for its sixth through tenth

taxable years after 1993 in which it incurs qualified research expenditures will be a phased-in ratio

based on its actual research experience. For all subsequent taxable years, the taxpayer's

fixed-based percentage will be its actual ratio of qualified research expenditures to gross receipts

for any five years selected by the taxpayer from its fifth through tenth taxable years after 1993

(sec. 41(c)(3)(B)). 

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1988, then its “fixed-base percentage” is the ratio that its total qualified research expenditures for

the 1984-1988 period bears to its total gross receipts for that period (subject to a maximum ratio of

.16). All other taxpayers (so-called “start-up firms”) are assigned a fixed-base percentage of 3

percent.4

In computing the credit, a taxpayer's base amount may not be less than 50 percent of its

current-year qualified research expenditures.

Alternative incremental research credit regime

Taxpayers are allowed to elect an alternative incremental research credit regime. If a

taxpayer elects to be subject to this alternative regime, the taxpayer is assigned a three-tiered

fixed-base percentage (that is lower than the fixed-base percentage otherwise applicable under

present law) and the credit rate likewise is reduced. Under the alternative credit regime, a credit

rate of 1.65 percent applies to the extent that a taxpayer's current-year research expenses exceed a

base amount computed by using a fixed-base percentage of 1 percent (i.e., the base amount equals

1 percent of the taxpayer's average gross receipts for the four preceding years) but do not exceed a

base amount computed by using a fixed-base percentage of 1.5 percent. A credit rate of 2.2

percent applies to the extent that a taxpayer's current-year research expenses exceed a base

amount computed by using a fixed-base percentage of 1.5 percent but do not exceed a base

amount computed by using a fixed-base percentage of 2 percent. A credit rate of 2.75 percent

applies to the extent that a taxpayer's current-year research expenses exceed a base amount

computed by using a fixed-base percentage of 2 percent. An election to be subject to this

alternative incremental credit regime applies to the taxable year in which the election is made and

all subsequent years (in the event that the credit subsequently is extended by Congress) unless

revoked with the consent of the Secretary of the Treasury.

Eligible expenditures

Qualified research expenditures eligible for the research tax credit consist of: (1)

“in-house” expenses of the taxpayer for wages and supplies attributable to qualified research; (2)
5

 Under a special rule, 75 percent of amounts paid or incurred by a taxpayer to a research

consortium for qualified research is treated as qualified research expenses eligible for the research

credit (rather than 65 percent under the general rule under sec. 41(b)(3) governing contract

research expenses) if (1) such research consortium is a tax-exempt organization that is described

in section 501(c)(3) (other than a private foundation) or section 501(c)(6) and is organized and

operated primarily to conduct scientific research, and (2) such qualified research is conducted by

the consortium on behalf of the taxpayer and one or more persons not related to the taxpayer. 

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certain time-sharing costs for computer use in qualified research; and (3) 65 percent of amounts

paid by the taxpayer for qualified research conducted on the taxpayer's behalf (so-called “contract

research expenses”).5

To be eligible for the credit, the research must not only satisfy the requirements of

present-law section 174 but must be undertaken for the purpose of discovering information that is

technological in nature, the application of which is intended to be useful in the development of a

new or improved business component of the taxpayer, and must pertain to functional aspects,

performance, reliability, or quality of a business component.

Expenditures attributable to research that is conducted outside the United States do not

enter into the credit computation. In addition, the credit is not available for research in the social

sciences, arts, or humanities, nor is it available for research to the extent funded by any grant,

contract, or otherwise by another person (or governmental entity).

Relation to deduction

Deductions allowed to a taxpayer under section 174 (or any other section) are reduced by

an amount equal to 100 percent of the taxpayer's research tax credit determined for the taxable

year. Taxpayers may alternatively elect to claim a reduced research tax credit amount under

section 41 in lieu of reducing deductions otherwise allowed (sec. 280C(c)(3)).

Description of Proposal

The research tax credit would be extended permanently.

In addition, the credit rate applicable under the alternative incremental credit would be

increased by one percentage point per step, that is, from 1.65 percent to 2.65 percent when a

taxpayer's current-year research expenses exceed a base amount of 1 percent but do not exceed a

base amount of 1.5 percent; from 2.2 percent to 3.2 percent when a taxpayer's current-year

research expenses exceed a base amount of 1.5 percent but do not exceed a base amount of 2

percent; and from 2.75 percent to 3.75 percent when a taxpayer's current-year research expenses

exceed a base amount of 2 percent.
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Credits attributable to periods after June 30, 1999, and before October 1, 2000, shall not be

taken into account in determining any amount required to be paid for any purpose under the

Internal Revenue Code before October 1, 2000. For this purpose, the credits will be earned in

equal monthly amounts. For example, assume a calendar year taxpayer which would otherwise

claim $24 of research tax credits for the 1999 taxable year. The proposal provides that the credit is

earned in twelve equal monthly installments ($2 per month). As a result, half of the credit is

earned prior to July 1, 1999, and the taxpayer may claim $12 of research credit (half of the

$24otherwise allowable) against his tax liability for the taxable year 1999 with the remaining $12

suspended until after September 30, 2000. Such credits would be available on or after October 1,

2000, by filing an amended return, applying for an expedited refund, applying for an adjustment

of estimated tax payments, or by other means allowed under the Internal Revenue Code.

Effective Date

Extension of the research credit would be effective for qualified research expenditures paid

or incurred beginning after June 30, 1999. The increase in the credit rate under the alternative

incremental credit would be effective for taxable years beginning after June 30, 1999.

D. Extend Exceptions under Subpart F for Active Financing Income

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
6

 Temporary exceptions from the subpart F provisions for certain active financing income

applied only for taxable years beginning in 1998. Those exceptions were extended and modified

as part of the present-law provision.

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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”). These exceptions are applicable

only for taxable years beginning in 1999.6

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.
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Description of Proposal

The proposal would extend for five years 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.

Effective Date

The proposal would be effective for taxable years of a foreign corporation beginning after

December 31, 1999, and before January 1, 2005, and for taxable years of U.S. shareholders with or

within which such taxable years of such foreign corporation end.

E. Extend Suspension of Net Income Limitation on Percentage

Depletion From Marginal Oil and Gas Wells

Present Law

The Code permits taxpayers to recover their investments in oil and gas wells through

depletion deductions. In the case of certain properties, the deductions may be determined using

the percentage depletion method. Among the limitations that apply in calculating percentage

depletion deductions is a restriction that, for oil and gas properties, the amount deducted may not

exceed 100 percent of the net income from that property in any year (sec. 613(a)).

Special percentage depletion rules apply to oil and gas production from “marginal”

properties (sec. 613A(c)(6)). Marginal production is defined as domestic crude oil and natural gas

production from stripper well property or from property substantially all of the production from

which during the calendar year is heavy oil. Stripper well property is property from which the

average daily production is 15 barrel equivalents or less, determined by dividing the average daily

production of domestic crude oil and domestic natural gas from producing wells on the property

for the calendar year by the number of wells. Heavy oil is domestic crude oil with a weighted

average gravity of 20 degrees API or less (corrected to 60 degrees Farenheit). Under one such

special rule, the 100-percent-of-net-income limitation does not apply to domestic oil and gas

production from marginal properties during taxable years beginning after December 31, 1997, and

before January 1, 2000.

Description of Proposal

The proposal would extend the present-law rule suspending the 100-percent-of-net-income

limitation with respect to oil and gas production from marginal wells to include taxable years

beginning after December 31, 1999, and before January 1, 2005.
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Effective Date

The proposal would be effective for taxable years beginning after December 31, 1999.

F. Extend the Work Opportunity Tax Credit

Present Law

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 generally is equal to a

percentage of qualified wages. The credit percentage is 25 percent for employment of at least 120

hours but less than 400 hours and 40 percent for employment of 400 hours or more. Qualified

wages consist of wages attributable to service rendered by a member of a targeted group during

the one-year period beginning with the day the individual begins work for the employer.

Generally, no more than $6,000 of wages during the first year of employment is permitted

to be taken into account with respect to any individual. Thus, the maximum credit per individual is

$2,400. With respect to qualified summer youth employees, the maximum credit is 40 percent of

up to $3,000 of qualified first-year wages, for a maximum credit of $1,200. The credit is only

effective for wages paid to, or incurred with respect to, qualified individuals who began work for

the employer before July 1, 1999.

The employer's deduction for wages is reduced by the amount of the credit.

Description of Proposal

The proposal would extend the WOTC for five years (through June 30, 2004).

Effective Date

Generally, the proposal would be effective for wages paid to, or incurred with respect to,

qualified individuals who begin work for the employer on or after July 1, 1999, and before July 1,

2004.

G. Extend the Welfare-To-Work Tax Credit

Present Law

The Code provides a tax credit to employers on the first $20,000 of eligible wages paid to

qualified long-term family assistance (“TANF”) 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.
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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 August 5, 1997 (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 who

are no longer eligible for family assistance because of either Federal or State time limits, if they are

hired within 2 years after the Federal or State time limits made the family ineligible for family

assistance.

Eligible wages include cash wages paid to an employee plus amounts paid by the

employer for the following: (1) educational assistance excludable under a section 127 program (or

that would be excludable but for the expiration of sec. 127); (2) health plan coverage for the

employee, but not more than the applicable premium defined under section 4980B(f)(4); and (3)

dependent care assistance excludable under section 129.

The welfare to work credit is effective for wages paid or incurred to a qualified individual

who begins work for an employer on or after January 1, 1998, and before June 30, 1999.

Description of Proposal

The proposal would extend the welfare-to-work credit for five years, so that the credit

would be available for eligible individuals who begin work for an employer before July 1, 2004.

Effective Date

The proposal would be effective for wages paid or incurred to a qualified individual who

begins work for an employer on or after July 1, 1999, and before July 1, 2004.

H. Extend and Modify Tax Credit for Electricity Produced

by Wind and Closed-Loop Biomass Facilities

Present Law

An income tax credit is allowed for the production of electricity from either qualified wind

energy or qualified “closed-loop” biomass facilities (sec. 45).

The credit applies to electricity produced by a qualified wind energy facility placed in

service after December 31, 1993, and before July 1, 1999, and to electricity produced by a

qualified closed-loop biomass facility placed in service after December 31, 1992, and before July

1, 1999. The credit is allowable for production during the 10-year period after a facility is

originally placed in service.
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Closed-loop biomass is the use of plant matter, where the plants are grown for the sole

purpose of being used to generate electricity. It does not include the use of 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. In order to

claim the credit, a taxpayer must own the facility and sell the electricity produced by the facility to

an unrelated party.

The credit for electricity produced from wind or closed-loop biomass is a component of

the general business credit (sec. 28(b)(1)). This credit, when combined with all other components

of the general business credit, generally may not exceed for any taxable year the excess of the

taxpayer’s net income tax over the greater of (1) 25 percent of net regular tax liability above

$25,000 or (2) the tentative minimum tax. An unused general business credit generally may be

carried back three taxable years and carried forward 15 taxable years (sec. 39).

Description of Proposal

The present-law tax credit for electricity produced by wind and closed-loop biomass

would be extended for five years, for facilities placed in service after June 30, 1999, and before

July 1, 2004. The proposal also would modify the tax credit to include electricity produced from

poultry litter, for facilities placed in service after December 31, 1999, and before July 1, 2004. The

credit for electricity produced from poultry litter would be available to the lessor/operator of a

qualified facility that was owned by a governmental entity. 

The credit further would be expanded to include electricity produced from landfill gas by

the owner of the gas collection facility, for electricity produced from facilities placed in service

after December 31, 1999, and before July 1, 2004. Finally, the credit would be expanded to

include electricity produced from certain other biomass (in addition to closed-loop biomass and

poultry waste). This additional biomass would be defined as solid, nonhazardous, cellulose waste

material which is segregated from other waste materials and which is derived from forest

resources, but not including old-growth timber. The term also would include urban sources such

as waste pallets, crates, manufacturing and construction wood waste, and tree trimmings, or

agricultural sources (including grain, orchard tree crops, vineyard legumes, sugar, and other crop

by-products or residues. The term would not include unsegregated municipal solid waste or paper

that commonly is recycled. In the case of this additional biomass, the credit would apply to

electricity produced after December 31, 1999 from facilities that are placed in service before

January 1, 2003 (including facilities placed in service before the date of enactment of this

proposal). The credit would be allowed for production attributable to biomass produced at

facilities that are co-fired with coal.

Effective Date

The extension of the tax credit for electricity produced from wind and closed-loop biomass

would be effective for facilities placed in service after June 30, 1999. The modification to include
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electricity produced from poultry litter and landfill gas would be effective for facilities placed in

service after December 31, 1999. The modification to include other types of biomass would be

effective for facilities placed in service before January 1, 2003, but no credits could be claimed for

production before January 1, 2000.

I. Extend Exemption From Diesel Dyeing Requirement for Certain Areas in Alaska

Present Law

An excise tax totaling 24.4 cents per gallon is imposed on diesel fuel. The diesel fuel tax is

imposed on removal of the fuel from a pipeline or barge terminal facility (i.e., at the “terminal

rack”). Present law provides that tax is imposed on all diesel fuel removed from terminal facilities

unless the fuel is destined for a nontaxable use and is indelibly dyed pursuant to Treasury

Department regulations.

In general, the diesel fuel tax does not apply to non-transportation uses of the fuel. Offhighway business uses are included within this non-transportation use exemption. This

exemption includes use on a farm for farming purposes and as fuel powering off-highway

equipment (e.g., oil drilling equipment). Use as heating oil also is exempt. (Most fuel commonly

referred to as heating oil is diesel fuel.) The tax also does not apply to fuel used by State and local

governments, to exported fuels, and to fuels used in commercial shipping. Fuel used by intercity

buses and trains is partially exempt from the diesel fuel tax.

A similar dyeing regime exists for diesel fuel under the Clean Air Act. That Act prohibits 

the use on highways of diesel fuel with a sulphur content exceeding prescribed levels. This “high

sulphur” diesel fuel is required to be dyed by the EPA.

The State of Alaska generally is exempt from the Clean Air Act dyeing regime for a period

established by the U.S. Environmental Protection Agency (urban areas) or permanently (remote

areas). Diesel fuel used in Alaska is exempt from the excise tax dyeing requirements for periods

when the EPA requirements do not apply.

Description of Proposal

The proposal would make the excise tax exemption for Alaska urban areas permanent (i.e.,

independent of the EPA rules).

Effective Date

The proposal would be effective on the date of enactment.
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J. Expand and Extend Brownfields Environmental Remediation

Present Law

Taxpayers can elect to treat certain environmental remediation expenditures that would

otherwise be chargeable to capital account as deductible in the year paid or incurred (sec. 198).

The deduction applies for both regular and alternative minimum tax purposes. The expenditure

must be incurred in connection with the abatement or control of hazardous substances at a

qualified contaminated site.

A “qualified contaminated site” generally is any property that (1) is held for use in a trade

or business, for the production of income, or as inventory; (2) is certified by the appropriate State

environmental agency to be located within a targeted area; and (3) contains (or potentially

contains) a hazardous substance (so-called “brownfields”). Targeted areas are defined as: (1)

empowerment zones and enterprise communities as designated under present law; (2) sites

announced before February, 1997, as being subject to one of the 76 Environmental Protection

Agency (“EPA”) Brownfields Pilots; (3) any population census tract with a poverty rate of 20

percent or more; and (4) certain industrial and commercial areas that are adjacent to tracts

described in (3) above. However, sites that are identified on the national priorities list under the

Comprehensive Environmental Response, Compensation, and Liability Act of 1980 cannot

qualify as targeted areas.

Eligible expenditures are those paid or incurred in taxable year’s ending before January 1,

2001.

Description of Proposal

The proposal would extend the expiration date for eligible expenditures to include those

paid or incurred in taxable years ending before July 1, 2004.

In addition, the proposal would eliminate the targeted area requirement, thereby,

expanding eligible sites to include any site containing (or potentially containing) a hazardous

substance that is certified by the appropriate State environmental agency other than sites that are

identified on the national priorities list under the Comprehensive Environmental Response,

Compensation, and Liability Act of 1980.

Effective Date

The proposal to extend the expiration date would be effective upon the date of enactment. 

The proposal to expand the class of eligible sites would be effective for expenditures paid or

incurred after December 31, 2000. 
7

 $75,000 for married taxpayers filing separately.

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II. REVENUE OFFSET FOR FISCAL YEAR 2000

A. Modification of Individual Estimated Tax Safe Harbor

Present Law

Under present law, an individual taxpayer generally is subject to an addition to tax for any

underpayment of estimated tax. An individual generally does not have an underpayment of

estimated tax if he or she makes timely estimated tax payments at least equal to: (1) 90 percent of

the tax shown on the current year’s return or (2) 100 percent of the prior year’s tax. For taxpayers

with a prior year’s AGI above $150,0007, however, the rule that allows payment of 100 percent of

prior year’s tax is modified. Those taxpayers with AGI above $150,000 generally must make

estimated payments based on either (1) 90 percent of the tax shown on the current year’s return or

(2) 110 percent of the prior year’s tax.

For taxpayers with a prior year’s AGI above $150,000, the prior year’s tax safe harbor is

modified for taxable years through 2002. For taxpayers making estimated payments based on

prior year’s tax, payments must be made based on 105 percent of prior years tax for taxable years

beginning in 1999, 106 percent of prior year’s tax for taxable years beginning in 2000 and 2001,

and 112 percent of prior year’s tax for taxable years beginning in 2002.

Description of Proposal

For taxable years beginning in 2000, any individual with an AGI of more than $150,000 as

shown on the return for the preceding taxable year ($75,000 for married taxpayers filing

separately) making estimated payments based on prior year’s tax must do so based on 109

percent of the prior year’s tax.

Effective Date

The proposal would be effective for estimated tax payments applicable to tax years

beginning after December 31, 1999, and before January 1, 2001.