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[House Report 107-66]
[From the U.S. Government Publishing Office]

107th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     107-66

======================================================================

 
             FAIRNESS FOR FOSTER CARE FAMILIES ACT OF 2001

                                _______
                                

  May 15, 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

                        [To accompany H.R. 586]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 586) to amend the Internal Revenue Code of 1986 to 
provide that the exclusion from gross income for foster care 
payments shall also apply to payments by qualified placement 
agencies, and for other purposes, having considered the same, 
report favorably thereon with an amendment and recommend that 
the bill as amended do pass.

                                CONTENTS

                                                                   Page
 I. Summary and Background............................................2
      A. Purpose and Summary.....................................     2
      B. Background and Need for Legislation.....................     2
      C. Legislative History.....................................     2
II. Explanation of the Bill...........................................3
      A. Expansion of the Exclusion From Income of Certain Foster 
          Care Payments..........................................     3
III.Vote of the Committee.............................................4

IV. Budget Effects of the Bill........................................4
      A. Committee Estimates of Budgetary Effects................     4
      B. Statement Regarding New Budget Authority and Tax 
          Expenditures Budget Authority..........................     4
      C. Cost Estimate Prepared by the Congressional Budget 
          Office.................................................     4
 V. Other Matters to be Discussed Under the Rules of the House........6
      A. Committee Oversight Findings and Recommendations........     6
      B. Statement of General Performance Goals and Objectives...     6
      C. Constitutional Authority Statement......................     6
      D. Information Relating to Unfunded Mandates...............     6
      E. Applicability of House Rule XXI 5(b)....................     6
      F. Tax Complexity Analysis.................................     7
VI. Changes in Existing Law Made by the Bill as Reported..............7

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Fairness for Foster Care Families Act 
of 2001''.

SEC. 2. EXCLUSION FOR FOSTER CARE PAYMENTS TO APPLY TO PAYMENTS BY 
                    QUALIFIED PLACEMENT AGENCIES.

  (a) In General.--The matter preceding subparagraph (B) of section 
131(b)(1) of the Internal Revenue Code of 1986 (defining qualified 
foster care payment) is amended to read as follows:
          ``(1) In general.--The term `qualified foster care payment' 
        means any payment made pursuant to a foster care program of a 
        State or political subdivision thereof--
                  ``(A) which is paid by--
                          ``(i) a State or political subdivision 
                        thereof, or
                          ``(ii) a qualified foster care placement 
                        agency, and''.
  (b) Qualified Foster Individuals To Include Individuals Placed by 
Qualified Placement Agencies.--Subparagraph (B) of section 131(b)(2) of 
such Code (defining qualified foster individual) is amended to read as 
follows:
                  ``(B) a qualified foster care placement agency.''
  (c) Qualified Foster Care Placement Agency Defined.--Subsection (b) 
of section 131 of such Code is amended by redesignating paragraph (3) 
as paragraph (4) and by inserting after paragraph (2) the following new 
paragraph:
          ``(3) Qualified foster care placement agency.--The term 
        `qualified foster care placement agency' means any placement 
        agency which is licensed or certified by--
                  ``(A) a State or political subdivision thereof, or
                  ``(B) an entity designated by a State or political 
                subdivision thereof,
        for the foster care program of such State or political 
        subdivision to make foster care payments to providers of foster 
        care.''
  (d) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2001.

                       I. SUMMARY AND BACKGROUND

                         A. Purpose and Summary

    The bill, H.R. 586, as amended (the ``Fairness for Foster 
Care Families Act''), provides for an expansion of the 
exclusion from income for certain foster care payments.
    The bill provides net tax reductions of over $181 million 
over fiscal years 2001-2006. This will provide needed revision 
of the tax treatment of qualified foster care payments.

                 B. Background and Need for Legislation

    The provisions approved by the Committee reduces complexity 
and provides needed revision of the tax treatment of qualified 
foster care payments to reflect current practices in the State 
foster care systems. The estimated revenue effects of the 
provisions comply with the most recent Congressional Budget 
Office revisions of budget surplus projections.

                         C. Legislative History

                            Committee Action

    The Committee on Ways and Means marked up the provisions of 
the bill on May 9, 2001, and reported the provisions, as 
amended, on May 9, 2001, by a voice vote, with a quorum 
present.

                      II. EXPLANATION OF THE BILL

  A. Expansion of the Exclusion From Income for Qualified Foster Care 
                                Payments

             (Sec. 2 of the bill and sec. 131 of the Code)

                              Present Law

    If certain requirements are satisfied, an exclusion from 
gross income is provided for qualified foster care payments 
paid to a foster care provider by either (1) a State or local 
government; or (2) a tax-exempt placement agency. Qualified 
foster care payments are amounts paid for caring for a 
qualified foster care individual in the foster care provider's 
home and difficulty of care payments.\1\ A qualified foster 
care individual is an individual living in a foster care family 
home in which the individual was placed by: (1) an agency of 
the State or local government (regardless of the individual's 
age at the time of placement); or (2) a tax-exempt placement 
agency licensed by the State or local government (if such 
individual was under the age of 19 at the time of placement).
---------------------------------------------------------------------------
    \1\ A difficulty of care payment is a payment designated by the 
person making such payment as compensation for providing the additional 
care of a qualified foster care individual in the home of the foster 
care provider which is required by reason of a physical, mental, or 
emotional handicap of such individual and with respect to which the 
State has determined that there is a need for additional compensation.
---------------------------------------------------------------------------

                           Reasons for Change

    The Committee is aware that States, in their continuing 
efforts to improve the foster care system, have realized the 
utility of both tax-exempt and for-profit private placement 
agencies. In some instances, the States have utilized for-
profit private placement agencies to perform the functions 
previously reserved for State or local government or tax-exempt 
entities. This bill is intended to modernize the exclusion to 
reflect these changes at the State level by equalizing the tax 
treatment of payments to qualified foster care providers 
regardless of the source of the payment. Also, the Committee 
believes that allowing placement by any qualified foster care 
agency (regardless of the individual's age at placement) will 
improve older children's chances for adoption. Finally, the 
Committee believes that these simpler rules may encourage more 
families to provide foster care.

                        Explanation of Provision

    The bill makes two modifications to the present-law 
exclusion for qualified foster care payments. First, the bill 
expands the definition of qualified foster care payments to 
include payments by any placement agency that is licensed or 
certified by a State or local government, or an entity 
designated by a State or local government to make payments to 
providers of foster care. Second, the bill expands the 
definition of a qualified foster care individual by including 
foster care individuals placed by a qualified foster care 
placement agency (regardless of the individual's age at the 
time of placement).

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 2001.

                       III. VOTE OF THE COMMITTEE

    Ordered reported by voice vote, with quorum present.

                     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. 586 as reported.
    The bill is estimated to have the following effects on 
budget receipts for fiscal years 2001-2006:

    ESTIMATED BUDGET EFFECTS OF H.R. 586, A BILL TO EXPAND THE EXCLUSION FROM INCOME FOR CERTAIN FOSTER CARE
                PAYMENTS, 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
----------------------------------------------------------------------------------------------------------------
Exclusion for Qualified Foster Care    tyba 12/31/01               -18     -29     -37     -45     -53      -181
 Payments--expand qualified foster
 care payments to include those made
 by any State-licensed or State-
 certified agency; eliminate the age
 restriction for certain placements
 of qualified foster individuals.
----------------------------------------------------------------------------------------------------------------
Note. Details may not add to totals due to rounding.

Legend for ``Effective'' column: tyba = taxable years beginning after.

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 no new or increased budget authority. The 
Committee further states that the revenue reducing income tax 
provision involves 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, May 11, 2001.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
U.S. House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 586, the Fairness 
for Foster Care Families 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,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.R. 586--Fairness for Foster Care Families Act of 2001

    Summary: H.R. 586 would modify the exclusion from gross 
income allowed for qualified foster care payments paid to a 
foster care provider by either a state or local government or 
by a tax-exempt placement agency. The bill would expand the 
definition of qualified foster care payments to include 
payments by any placement agency that is licensed or certified 
by a state or local government, or an entity designated by such 
governments to make payments to foster care providers.
    The Congressional Budget Office and the Joint Committee on 
Taxation (JCT) estimate that enacting the bill would reduce 
revenues by $18 million in fiscal year 2002, by $181 million 
over the 2002-2006 period, and by $586 million over the 2002-
2011 period. Because the bill would affect receipts, pay-as-
you-go procedures would apply.
    H.R. 586 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would not affect the budgets of state, local, or tribal 
governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 586 is shown in the following table. 
All estimates of the revenue effects of the bill were provided 
by JCT.

----------------------------------------------------------------------------------------------------------------
                                                                    By fiscal year, in millions of dollars--
                                                               -------------------------------------------------
                                                                  2002      2003      2004      2005      2006
----------------------------------------------------------------------------------------------------------------
                                               CHANGES IN REVENUES

Estimated Revenues............................................       -18       -29       -37       -45       -53
----------------------------------------------------------------------------------------------------------------

    Pay-as-you-go-considerations: The Balanced Budget and 
Emergency Deficit Control Act sets up pay-as-you-go procedures 
for legislation affecting direct spending or receipts. The net 
changes in 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, the budget year, and the 
succeeding four years are counted.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                        By fiscal year, in millions of dollars--
                                                               -----------------------------------------------------------------------------------------
                                                                 2001    2002    2003    2004    2005    2006    2007    2008    2009    2010     2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays............................................                                        Not applicable
Changes in receipts...........................................       0     -18     -29     -37     -45     -53     -61     -71     -80     -91      -102
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Intergovernmental and private-sector impact: H.R. 586 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would not affect the budgets of state, 
local, or tribal governments.
    Estimate prepared by: Erin Whitaker.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax 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 concerning the tax burden on individual 
taxpayers that the Committee concluded that it is appropriate 
and timely to enact the revenue provision included in the bill 
as reported.

        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 Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

                 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 bill does not contain 
Federal mandates on the private sector. 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

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service and the Department of the Treasury) to provide 
a tax complexity analysis. The complexity analysis is required 
for all legislation reported by the House Committee on Ways and 
Means, the Senate Committee on Finance, or any committee of 
conference if the legislation includes a provision that 
directly or indirectly amends the Internal Revenue Code and has 
widespread applicability to individuals or small businesses.
    The staff of the Joint Committee on Taxation has determined 
that a complexity analysis is not required under section 
4022(b) of the IRS Reform Act because the bill contains no 
provisions that amend the Internal Revenue Code and that have 
``widespread applicability'' to individuals or small 
businesses.

       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 italic, existing law in which no change is 
proposed is shown in roman):

            SECTION 131 OF THE INTERNAL REVENUE CODE OF 1986

SEC. 131. CERTAIN FOSTER CARE PAYMENTS

  (a) * * *
  (b) Qualified Foster Care Payment Defined.--For purposes of 
this section--
          [(1) In general.--The term ``qualified foster care 
        payment'' means any amount--
                  [(A) which is paid by a State or political 
                subdivision thereof or by a placement agency 
                which is described in section 501(c)(3) and 
                exempt from tax under section 501(a), and]
          (1) In general.--The term ``qualified foster care 
        payment'' means any payment made pursuant to a foster 
        care program of a State or political subdivision 
        thereof--
                  (A) which is paid by--
                          (i) a State or political subdivision 
                        thereof, or
                          (ii) a qualified foster care 
                        placement agency, and

           *       *       *       *       *       *       *

          (2) Qualified foster individual.--The term 
        ``qualified foster individual'' means any individual 
        who is living in a foster family home in which such 
        individual was placed by--
                  (A) an agency of a State or political 
                subdivision thereof, or
                  [(B) in the case of an individual who has not 
                attained age 19, an organization which is 
                licensed by a State (or political subdivision 
                thereof) as a placement agency and which is 
                described in section 501(c)(3) and exempt from 
                tax under section 501(a).]
                  (B) a qualified foster care placement agency.
          (3) Qualified foster care placement agency.--The term 
        ``qualified foster care placement agency'' means any 
        placement agency which is licensed or certified by--
                  (A) a State or political subdivision thereof, 
                or
                  (B) an entity designated by a State or 
                political subdivision thereof,
        for the foster care program of such State or political 
        subdivision to make foster care payments to providers 
        of foster care.
          [(3)] (4) Limitation based on number of individuals 
        over the age of 18.--In the case of any foster home in 
        which there is a qualified foster care individual who 
        has attained age 19, foster care payments (other than 
        difficulty of care payments) for any period to which 
        such payments relate shall not be excludable from gross 
        income under subsection (a) to the extent such payments 
        are made for more than 5 such qualified foster 
        individuals.

           *       *       *       *       *       *       *

                                  
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