**Joint Committee on Taxation							  May 18, 1998							     JCX-39-98**

**COMPARISON OF TAX TECHNICAL CORRECTIONS CONTAINED IN H.R. 2676 AS PASSED BY THE HOUSE AND THE SENATE**

	Title VI of H.R. 2676, as passed by the House on November 5, 1997,(1) contains technicalcorrections to the Taxpayer Relief Act of 1997 (the "1997 Act") and other legislation.  Except forone instance noted below, the Senate amendment to H.R. 2676 (as passed on May 7, 1998)generally contains the provisions of Title VI of the House bill.  Some of these provisions aremodified by the Senate amendment.  In addition, the Senate amendment contains additional technical corrections. The differences between the  technical corrections in the Senateamendment and in the House bill are briefly described below.

**1. Child Tax Credit Provisions of the 1997 Act**

	Treatment of a portion of the child credit as a supplemental child credit.-- The Senateamendment modifies the provision of the House bill intended to clarify the treatment of a portionof the child credit as a supplemental child credit under the earned income credit and an offsettingreduction of the child credit.  Specifically, the Senate amendment clarifies the computation of theamount of the child credit that is treated as a supplemental child credit.  Both the House bill andthe Senate amendment clarify that such treatment does not affect the total tax credits allowed tothe taxpayer or any other tax credit available to the taxpayer.

**2.  Education Incentives of the 1997 Act**

Education IRAs.--The Senate amendment adds provisions to: (1) provide that the excisetax of section 4973 applies to each year that an excess contribution remains in an education IRA;(2) clarify that a beneficiary of an education IRA must be a life-in-being; (3) clarify that the 10-percent excise tax provided under section 530(d)(4) will not be imposed in cases where adistribution from an education IRA is includible in gross income solely because the taxpayerelects the HOPE or Lifetime Learning credit with respect to the beneficiary; (4) clarify that, inthe event of the death of the designated beneficiary, the balance remaining in an education IRAmay be distributed to any other beneficiary or to the estate of the deceased designatedbeneficiary, and a tax-free rollover of the account will be allowed if any member of the familybecomes the new beneficiary; and (5) provide that if expenses are taken into account indetermining the amount of the exclusion under section 530 for a distribution from an educationIRA, then no deduction, exclusion, or credit is allowed under the Code with respect to suchexpenses.

Student loan interest.--The Senate amendment adds a provision to clarify that only ataxpayer who is required to make interest payments under the terms of the loan may deduct suchpayments as student loan interest.

Enhanced deduction for corporate donations of computers.--The Senate amendment addsa provision to clarify the requirements applicable to entities and organizations to whichcomputers may be donated for purposes of the enhanced deduction.

Qualified State tuition programs.--The Senate amendment adds a provision that includesthe original beneficiary's spouse within the definition of "member of the family." 

Qualified zone academy bonds.--The Senate amendment adds a provision that clarifiesthe treatment of the credit for purposes of  the estimated tax and overpayment rules.

**3.  Savings Incentives of the 1997 Act**

Conversion of IRAs into Roth IRAs.-Under the Senate amendment, in the case ofconversions of IRAs into Roth IRAs, the taxpayer is able to elect to have the amount convertedincludible in income in the year of the conversion (or the year of withdrawal if the conversion isaccomplished through a rollover) rather than ratably over 4 years.  The Senate amendment doesnot include the additional 10-percent recapture tax applicable to premature withdrawals ofamounts to which the 4-year spread applies.  Instead, under the Senate amendment, if anindividual elects application of the 4-year spread and withdraws amounts before the entireamount of the conversion has been included in income, the amount withdrawn is includible inincome (in addition to any amount required to be included under the 4-year spread).  In no casewill the amount includible under this provision exceed the amount converted.  The Senateamendment does not include the rules in the House bill regarding separate accounts for convertedamounts and instead includes ordering rules for determining the character of withdrawals fromRoth IRAs.

	Under the Senate amendment, a new 5-year holding period for determining whetherdistributions from a Roth IRA are qualified distributions does not apply to converted amounts. Thus, the 5-year holding period begins with the year for which a contribution (including arollover contribution) was made.   

	The Senate amendment also clarifies calculation of adjusted gross income for purposes ofapplying the $100,000 adjusted gross income ("AGI") limit on individuals eligible to convertIRAs to Roth IRAs.  Under the Senate amendment, the applicable AGI is AGI for the year of thedistribution to which the conversion relates.  In addition, under the Senate amendment, it isintended that in determining AGI, the conversion amount (to the extent otherwise includible inAGI) is subtracted from AGI for the year of the distribution.

Penalty-free distributions for education expenses and purchase of first homes.--TheSenate amendment modifies the provision in the House bill intended to prevent avoidance of the10-percent early withdrawal tax by providing that hardship distributions from qualified cash ordeferred arrangements and tax-sheltered annuities are not eligible rollover distributions (and notsubject to 20-percent withholding).  The Senate amendment also modifies the effective date ofthe House bill provision.  The Senate amendment is effective for distributions after December 31,1998.

**4.  Capital Gains Provisions of the 1997 Act**

	The Senate amendment modifies two provisions of the House bill to: (1) clarify theprovision relating to the holding period of positions in certain short sales and straddles; and (2)provide that new section 1045 (relating to rollovers of small business stock) applies to stock heldby certain partnerships with trusts as partners.  The Senate amendment adds a provision to clarifythe amount of exclusion applicable to the sale of a principal residence by a married couple filinga joint return who do not qualify for the full $500,000 exclusion.

**5.  Alternative Minimum Tax Provisions of the 1997 Act**

	The Senate amendment adds provisions that: (1) conform the regular-tax election to useAMT depreciation to the changes made to AMT depreciation by the 1997 Act; and (2) clarify theeligibility of the small corporation exemption.

**6.  Estate and Gift Tax Provisions of the 1997 Act**

	The Senate amendment modifies the provisions of the House bill to: (1) clarify theeffective date for the generation-skipping exemption; (2) coordinate the unified credit and thequalified family-owned business exclusion; and (3) clarify the rules governing revaluation ofgifts.  The Senate amendment also adds provisions that: (1) clarify the phaseout range for the 5-percent surtax to phase out the benefits of the unified credit and graduated rates; (2) clarify thatinterests eligible for the family-owned business exclusion must be passed to a qualified heir; (3)clarify the "trade or business" requirement for the family-owned business exclusion; (4) convertthe family-owned business exclusion into a deduction; (5) make other technical changes to itemscross-referenced in the family-owned business provision; and (6) clarify the treatment of post-mortem conservation contributions.

**7.  D.C. Zone Incentives of the 1997 Act**

	The Senate amendment adds provisions that clarify the definitions of businesses andproperty eligible for special incentives available with respect to the D.C. Zone.  In addition, theSenate amendment provides that the income phase-out rules applicable to the D.C. first-timehomebuyer credit apply only in the year the credit is generated and not in subsequent carryoveryears.

**8.  Miscellaneous Provisions of the 1997 Act**

	The Senate amendment adds provisions that: (1) clarify the qualification of the reducedrate of tax on hard ciders; (2) clarify the treatment of the tax paid by electing publicly treatedpartnerships; (3) modify the depreciation limitation of electric vehicles; and (4) modify thedefinition of "non-Amtrak State" for purposes of the Amtrak net operating loss provision.

**9.  Revenue-Increase Provisions of the 1997 Act**

	The Senate amendment adds provisions that: (1) clarify that the exception to theconstructive sales rules for positions with respect to straight debt instruments does not apply topositions that are convertible into stock; (2) provide coordination between the basis adjustmentrules relating to extraordinary dividends and similar rules applicable to consolidated returns; (3)clarify the interaction of section 355 and rules relating to certain divisive transactions involvingasset contributions to a subsidiary; (4) clarify the application of section 304 to certaininternational transactions; (5) clarify the treatment of prepaid telephone cards for telephoneexcise tax purposes; (6) modify the unrelated business income tax rules applicable to second-tiersubsidiaries; (7) modify the interaction between section 901(k) and the foreign tax credit flow-through rules for RICs; (8) clarify the treatment of additional covered lives under a mastercontract for purposes of the effective date of the provision relating to company owned lifeinsurance; (9) make a clerical amendment to the definition of wages under the earned incomecredit; and (10) clarify the allocation of basis of properties distributed by a partnership.

**10.  Foreign Provisions of the 1997 Act**

	The Senate amendment adds provisions that: (1) clarify the treatment of PFIC optionholders; (2) clarify the application of PFIC mark-to-market rules to RICs; and (3) clarify theinteraction between the PFIC and other mark-to-market regimes.

**11.  Simplification Provisions of the 1997 Act**

	The Senate amendment adds a provision that provides that distributions from a REIT aredeemed to first come from any non-REIT earnings.

**12.  Estate, Gift, and Trust Simplification Provisions of the 1997 Act**

	The Senate amendment adds provisions that: (1) clarify the treatment of revocable trustsfor purposes of the generation-skipping transfer tax; and (2) provide regulatory authority forsimplified reporting of funeral trusts terminated during the taxable year.

**13.  Excise Tax Simplification Provisions of the 1997 Act**

	The Senate amendment clarifies that the 1997 Act's provision liberalizing rules for bulkimportation of wine applies only to alcohol that would qualify as a natural wine if produced inthe United States.

**14.  Pension and Employee Benefits Provisions of the 1997 Act**

	The Senate amendment adds a clarification to the scope of the provision relating to thetreatment of disability payments made to public safety employees.

**15.  Technical Corrections Relating to Other Legislation**

Adoption credit.--The Senate amendment adds a provision that provides that the phase-out rules applicable to the adoption credit are not applicable to credit carryovers.

Disclosure requirements of apostolic organizations.--The Senate amendment adds aprovision that provides that section 501(d) apostolic organizations are not required to discloseSchedules K-1.

Earned income credit qualification.--The Senate amendment adds provisions that clarifythe application of the taxpayer identification number rules for purposes of determining eligibilityfor the earned income credit.

Stapled REIT grandfather rule.--The Senate amendment does not include the provision ofthe House bill relating to the grandfather rule applicable to stapled REITs.

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1.   The "Tax Technical Corrections Act of 1997" was added as an amendment to H.R.2676 (Title VI) on the House floor.  The provisions were previously reported by the HouseCommittee on Ways and Means in H.R. 2645 (H. Rept. 105-356, October 29, 1997).