99–006

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

REPORT

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

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

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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

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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.

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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,

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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—

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(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

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‘‘(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’’.

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(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—

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‘‘(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).’’.

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(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

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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

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‘‘(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’’.

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(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.—

14

(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.

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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.

16

‘‘(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.

17

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

18

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 cleanfuel 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.

19

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

20

1The 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. 2The 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.

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 firstyear depreciation for any class of property for any taxable year.

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.

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.

21

4 A subsequent provision in the bill temporarily increases the amount deductible under section

179 to $35,000.

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.

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

22

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.

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).

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.

23

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:

24

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

(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 enVerDate 11-MAY-2000 17:55 Oct 18, 2001 Jkt 099006 PO 00000 Frm 00024 Fmt 6659 Sfmt 6602 E:\HR\OC\HR251.XXX pfrm07 PsN: HR251
25

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.

tire AMT credit for the first taxable year beginning after December

31, 2000 (to the extent the credit is in excess of tax liability).

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.

26

7Section 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). 8The 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. 9Former 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

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

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

27

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). 11The 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.

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

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.

28

13 A blended rate of 27.5 percent applies in 2001 because of the July 1, 2001 effective date

of EGTRRA.

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.

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

29

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.

30

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.

31

14This results in a maximum effective regular tax rate on qualified gain from small business

stock of 14 percent.

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. ‘‘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.

32

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 passthrough 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 inVerDate 11-MAY-2000 17:55 Oct 18, 2001 Jkt 099006 PO 00000 Frm 00032 Fmt 6659 Sfmt 6602 E:\HR\OC\HR251.XXX pfrm07 PsN: HR251
33

dividual’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 591⁄2, 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.

34

15 A portion of the child credit may be refundable. 16Section 202(b) of the bill increases certain of the exemption amounts.

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 credit15, 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.

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,

35

17The 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.

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 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

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.

36

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.

37

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.

38

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).

39

18The 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.

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 cleanfuel 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 cleanburning 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.

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

40

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.

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.

41

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 taxexempt 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

42

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.

43

20 A proof gallon is a liquid gallon consisting of 50 percent alcohol.

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). 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-perproof-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

44

21Tax 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).

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.

Terminal facilities are not permitted to receive and store nontax-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.

45

22Self-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.

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 selfemployed 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.

46

23These dollar amounts are for 2001. These amounts are indexed for inflation in $50 increments. 24This exclusion does not apply to expenses that are reimbursed by insurance or otherwise. 25The 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.

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.

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.

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.

47

26Permitted coverage, as described above, does not constitute coverage under a health insurance plan for this purpose.

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.

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.

48

27Temporary 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.

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

With respect to income derived in the active conduct of a banking, financing, or similar business, a CFC is required to be preVerDate 11-MAY-2000 17:55 Oct 18, 2001 Jkt 099006 PO 00000 Frm 00048 Fmt 6659 Sfmt 6602 E:\HR\OC\HR251.XXX pfrm07 PsN: HR251
49

dominantly 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

50

28The 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). 29The 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). 30The Tax Relief Extension Act of 1999, P.L. No. 106–170, sec. 503 (1999).

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.

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

51

31Special rules also apply to certain real estate debt and farm debt.

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.

52

32 531 U.S. 206 (2001).

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.

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.

53

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.

54

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

55

33 1999–2C.B. 725 34 A special rule provides that no interest will be paid with respect to the checks.

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

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.

In general, taxpayers eligible for the credit (and the check) are

individuals other than estates or trusts, nonresident aliens, or deVerDate 11-MAY-2000 17:55 Oct 18, 2001 Jkt 099006 PO 00000 Frm 00055 Fmt 6659 Sfmt 6602 E:\HR\OC\HR251.XXX pfrm07 PsN: HR251
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35Taxpayers 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.

pendents. 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.

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

57

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

58

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

59

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

60

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

61

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.

62

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

63

Representatives Yea Nay Present Representatives Yea Nay Present

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 ........... .............

64

Representatives Yea Nay Present Representatives Yea Nay Present

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 REPOR

THE COMMITTEE ON WAYS AND MEANS

[Fiscal years 2002–2006, in millions of dollars]

Provision Effective 2002 2003 2004 2005 2006 

Cost Recovery Provisions

1. 30% expensing of the value of capital assets with MACRS lives of 20 years or less and

purchased software (sunset after 36 months) 1 ......................................................................... ppiso/a 9/11/01 ¥39,301 ¥36,125 ¥30,295 ¥6,904 22,299 

2. Increase in section 179 expensing to $35,000, and increase beginning point for phaseout to

$325,000 for 24 months .............................................................................................................. tyba 12/31/01 ¥852 ¥1,406 ¥142 682 466 

3. 15-year life leasehold improvements 2 ........................................................................................ lipiso/a 9/11/01 ¥78 ¥202 ¥369 ¥533 ¥684 

Total of Cost Recovery Provisions ....................................................................................... ................................................. ¥40,231 ¥37,733 ¥30,806 7,053 22,081 

Net Operating Loss Provision—5-Year Carryback of Net Operating Losses and Waive the AMT

90% Limitation on the Allowance of Losses (sunset after 36 months) ..................................... NOLs gi tyeo/a 9/11/01 ¥4,704 ¥3,528 ¥1,910 3,418 3,026 

Alternative Minimum Tax Provisions–Repeal the corporate AMT and fully refund AMT credits 3 ... tyba 12/31/00 ¥25,397 822 1,209 736 189 

Deferral of Multinational Business Income Provision—Permanently extend exceptions under

subpart F for active financing income ........................................................................................ tyba 12/31/01 ¥260 ¥1,252 ¥1,441 ¥1,659 ¥1,911 

Provisions Affecting Individual Taxpayers

1. Supplemental Rebate—Provide a rebate ($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 receivedunder H.R. 1836 4 ......................................................................................................................... DOE ¥13,733 .................... .................... .................... .................... 

2. Accelerate the 25% individual income tax rate scheduled to go into effect in 2006 to 2002 tyba 12/31/01 ¥12,816 ¥18,862 ¥12,196 ¥7,685 ¥2,106 

3. Increase AMT exemption by $1,600 non-joint/$3,200 joint for 2002 and 2003, and $850

non-joint/$1,700 joint for 2004 ................................................................................................... tyba 12/31/01 ¥717 ¥2,063 ¥2,315 ¥1,250 .................... 

4. Increase deduction of capital losses of individuals against ordinary income from $3,000 to

$4,000 for taxable year 2001 only and $5,000 for taxable year 2002 only .............................. tyba 12/31/01 ¥840 ¥1,224 83 54 25 

5. Simplify individual capital gains—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 .................... soeo/a 10/12/01 ¥535 1,451 ¥1,033 ¥2,420 ¥2,385 

6. Expand the exemption from the early withdrawal tax for health insurance expenses for unemployed individuals .................................................................................................................... (5) ¥13 ¥59 ¥33 1 1 

Total of Provisions Affecting Individual Taxpayers ............................................................. ................................................. ¥28,654 ¥20,757 ¥15,494 ¥11,300 ¥4,465 

ESTIMATED BUDGET EFFECTS OF THE REVENUE PROVISIONS CONTAINED IN H.R. 3090, THE ‘‘ECONOMIC SECURITY AND RECOVERY ACT OF 2001,’’ AS REPOR

THE COMMITTEE ON WAYS AND MEANS—Continued

[Fiscal years 2002–2006, in millions of dollars]

Provision Effective 2002 2003 2004 2005 2006 

Extension of Expiring Provisions and Technical Amendments

1. Two-year extension of provisions expiring in 2001:

a. Treatment of nonrefundable personal credits under the individual alternative minimum

tax 6 ..................................................................................................................................... tyba 12/31/01 ¥123 ¥664 ¥695 .................... .................... 

b. Work opportunity tax credit ................................................................................................. wpoifibwa 12/31/01 ¥92 ¥246 ¥247 ¥130 ¥51 

c. Welfare-to-work tax credit ................................................................................................... wpoifibwa 12/31/01 ¥27 ¥79 ¥90 ¥54 ¥23 

d. Tax credit for electricity production from wind, closed-loop biomass, and poultry litter—facilities placed in service date ................................................................................ ppisa 12/31/01 ¥9 ¥26 ¥33 ¥34 ¥34 

e. Suspension of 100 percent-of-net-income limitation on percentage depletion for oil and

gas from marginal wells ..................................................................................................... tyba 12/31/01 ¥27 ¥41 ¥14 .................... .................... 

f. Qualified zone academy bonds ............................................................................................ tyba 12/31/01 (7) ¥2 ¥7 ¥14 ¥20 

g. Temporary increase in limit on cover over of rum excise tax revenues (from $10.50 to

$13.25 per proof gallon) to Puerto Rico and the Virgin Islands 8 ..................................... DOE ¥65 ¥61 ¥14 .................... .................... 

h. Suspension of requirement that terminals selling diesel fuel and kerosene must sell

both dyed and undyed fuel ................................................................................................. DOE Negligible Revenue Effect

i. Deductions for clean-fuel vehicles and refueling property ................................................. ppisa 12/31/01 9 ¥9 ¥19 ¥18 ¥13 2 

j. Tax credit for electric vehicles ............................................................................................. ppisa 12/31/01 10 ¥25 ¥43 ¥41 ¥34 ¥20 

k. Tax on failure to comply with mental health parity requirements applicable to group

health plans ........................................................................................................................ pybo/a 1/1/02 Negligible Revenue Effect

2. One-year extension of provision expiring in 2002-Archer medical savings accounts (‘‘MSAs’’) DOE .................... (7) ¥2 ¥2 ¥2 

3. Technical Amendments:

a. Limit use of non-accrual experience method of accounting to amounts to be received

for the performance of qualified professional services ..................................................... tyea DOE 14 62 33 29 16 

b. Reverse the Supreme Court’s decision in Gitlitz v. Commissioner (relating to subchapter S corporations) ....................................................................................................... da 10/11/01 58 85 89 93 97 

Total of Extension of Expiring Provisions and Technical Amendments ............................. ................................................. ¥305 ¥1,034 ¥1,039 ¥159 ¥35 Net total .............................................................................................................................. ................................................. ¥99,551 ¥63,482 ¥49,481 ¥1,911 ¥18,885 

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; p

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; wpoipaid or incurred for individuals beginning work after.

Note.

—Details may not add to totals due to rounding.

Source: Joint Committee on Taxation.

68

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,

69

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 nonaccrual 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

70

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

71

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 Provisions ¥490 ¥2,295 ¥2,490 ¥1,818 ¥1,946

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 ¥300

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

Trust Fund 1 ...................................................... 700 700 0 0 0

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 Surplus ................................................................... ¥101,176 ¥66,091 ¥49,191 1,611 19,185

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

72

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 payas-you-go procedures, only the effects in the current year and the

succeeding four years are counted.

73

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.

74

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.

75

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

76

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 firstyear 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.

77

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.

78

36The Financial Management Service of the Department of the Treasury, not the Internal

Revenue Service, prints and mails the checks.

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.

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

79

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

80

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

81

(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 shortterm 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

82

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.

83

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.

* * * * * * *

øPart 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) ø10¿ 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) ø20¿ 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);

* * * * * * *

ø(2) REDUCED CAPITAL GAIN RATES FOR QUALIFIED 5-YEAR

GAIN.—

84

ø(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.

ø(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—

ø(i) the excess of qualified 5-year gain over the

amount of such gain taken into account under subparagraph (A) of this paragraph; or

ø(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.¿

ø(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).

ø(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.

ø(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

* * * * * * *

ø(6)¿ (5) COLLECTIBLES GAIN AND LOSS.—For purposes of this

subsection— (A) * * *

* * * * * * *

ø(7)¿ (6) UNRECAPTURED SECTION 1250 GAIN.—For purposes of

this subsection—

(A) * * *

* * * * * * *

ø(8)¿ (7) SECTION 1202 GAIN.—For purposes of this subsection, the term ‘‘section 1202 gain’’ means the excess of—

(A) * * *

* * * * * * *

85

ø(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.¿

ø(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.

ø(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.

ø(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 taxable years

beginning during calendar year:

The corresponding percentages shall be

substituted for

the following percentages:

28% 31% 36% 39.6%

2001 ............................................... 27.5% 30.5% 35.5% 39.1%

2002 and 2003 .............................. ø27.0%¿

25.0%

30.0% 35.0% 38.6%

2004 and 2005 .............................. ø26.0%¿

25.0%

29.0% 34.0% 37.6%

2006 and thereafter ..................... 25.0% 28.0% 33.0% 35.0%

* * * * * * *

PART II—TAX ON CORPORATIONS

* * * * * * *

SEC. 11. TAX IMPOSED.

(a) * * *

* * * * * * *

(d) FOREIGN CORPORATIONS.—In the case of a foreign corporation,

øthe taxes imposed by subsection (a) and section 55¿ the tax imposed by subsection (a) shall apply only as provided by section 882.

86

SEC. 12. CROSS REFERENCES RELATING TO TAX ON CORPORATIONS.

(1) * * *

* * * * * * *

ø(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 øamount 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 øRULE FOR 2000 AND 2001.—¿ RULE FOR 2000, 2001, 2002, AND 2003.—For purposes of any taxable year beginning

øduring 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),

ø(B) section 59A (relating to environmental tax),¿

ø(C)¿ (B) subsection (m)(5)(B), (q), (t), or (v) of section 72

(relating to additional taxes on certain distributions),

ø(D)¿ (C) section 143(m) (relating to recapture of proration of Federal subsidy from use of mortgage bonds and

mortgage credit certificates),

ø(E)¿ (D) section 530(d)(3) (relating to additional tax on

certain distributions from education individual retirement

accounts),

87

ø(F)¿ (E) section 531 (relating to accumulated earnings

tax),

ø(G)¿ (F) section 541 (relating to personal holding company tax),

ø(H)¿ (G) section 1351(d)(1) (relating to recoveries of foreign expropriation losses),

ø(I)¿ (H) section 1374 (relating to tax on certain builtin gains of S corporations),

ø(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),

ø(K)¿ (J) subparagraph (A) of section 7518(g)(6) (relating

to nonqualified withdrawals from capital construction

funds taxed at highest marginal rate),

ø(L)¿ (K) sections 871(a) and 881 (relating to certain income of nonresident aliens and foreign corporations),

ø(M)¿ (L) section 860E(e) (relating to taxes with respect

to certain residual interests),

ø(N)¿ (M) section 884 (relating to branch profits tax),

ø(O)¿ (N) sections 453(l)(3) and 453A(c) (relating to interest on certain deferred tax liabilities),

ø(P)¿ (O) section 860K (relating to treatment of transfers

of high-yield interests to disqualified holders), and,

ø(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) * * *

* * * * * * *

ø(6) APPLICATION WITH OTHER CREDITS.—The credit allowed

by subsection (a) for any taxable year shall not exceed the excess (if any) of—

ø(A) the regular tax for the taxable year reduced by the

sum of the credits allowable under subpart A and section

27, over

ø(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.

* * * * * * *

88

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, ø2001¿ 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 ø2002¿ 2004, (B) 50 percent in the case of property placed in service

in calendar year ø2003¿ 2005, and

(C) 75 percent in the case of property placed in service

in calendar year ø2004¿ 2006. ø(3) APPLICATION WITH OTHER CREDITS.—The credit allowed

by subsection (a) for any taxable year shall not exceed the excess (if any) of—

ø(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—

ø(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, ø2004¿ 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—

ø(1) section 59A (relating to environmental tax),¿

ø(2)¿ (1) section 531 (relating to the tax on accumulated

earnings),

ø(3)¿ (2) section 541 (relating to personal holding company

tax), or

ø(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.—

89

ø(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— ø(A) the tentative minimum tax for the taxable year, or

ø(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 reg- ular 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

ø(ii) for purposes of applying paragraph (1) to such

credit

ø(I) 75 percent of the tentative minimum tax

shall be substituted for the tentative minimum

tax under subparagraph (A) thereof, and

ø(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

90

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 øsubparagraph (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 øsubparagraph

(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 øsubparagraph

(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 øsubparagraph

(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, ø2002¿ 2004.

91

(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, ø2002¿ 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, ø2002¿ 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, ø2001¿ 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, ø2001¿ 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—

92

(I) the adjustments provided for in subsection

ø(b)(1)¿ (a)(8) of section 56, and

* * * * * * *

ø(iv) CREDIT ALLOWABLE FOR EXCLUSION PREF- ERENCES OF CORPORATIONS.—In the case of a

corporation— ø(I) the preceding provisions of this subparagraph shall not apply, and

ø(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

øSec. 55. Alternative minimum tax imposed.¿

Sec. 55. Alternative minimum tax for taxpayers other than corporations.

* * * * * * *

øSEC. 55. ALTERNATIVE MINIMUM TAX IMPOSED.

ø(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— ø(1) the tentative minimum tax for the taxable year, over

ø(2) the regular tax for the taxable year.

ø(b) TENTATIVE MINIMUM TAX.—For purposes of this part— ø(1) AMOUNT OF TENTATIVE TAX.— ø(A) NONCORPORATE TAXPAYERS.— ø(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— ø(I) 26 percent of so much of the taxable excess

as does not exceed $175,000, plus

ø(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.

ø(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.

ø(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.

ø(B) CORPORATIONS.—In the case of a corporation, the

tentative minimum tax for the taxable year is—

ø(i) 20 percent of so much of the alternative minimum taxable income for the taxable year as exceeds

the exemption amount, reduced by

93

ø(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 ø(1)(A)(i)¿ (1)(A) shall not exceed the sum of—

(A) * * *

(B) ø10¿ 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) ø20¿ 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

øIn 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)ø, the section 936 credit allowable

under section 27(b), and the Puerto Rico economic activity

94

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 øFOR TAXPAYERS OTHER THAN COR- PORATIONS.—In the case of a taxpayer other than a corporation, the¿.—The term ‘‘exemption amount’’ means— (A) $45,000 ø($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 ø($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,

ø(2) CORPORATIONS.—In the case of a corporation, the term ‘‘exemption amount’’ means $40,000.¿

ø(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) øor (2)¿,

* * * * * * *

ø(e) EXEMPTION FOR SMALL CORPORATIONS.—

ø(1) IN GENERAL.—

ø(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.

ø(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).

ø(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.

ø(D) SPECIAL RULES.—For purposes of this paragraph,

the rules of paragraphs (2) and (3) of section 448(c) shall

apply.

95

ø(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:

ø(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.

ø(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.

ø(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.

ø(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.

ø(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.

ø(F) Section 56(g)(4)(A) (relating to adjustment for depreciation to adjusted current earnings) shall not apply.

ø(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.

ø(3) EXCEPTION.—The modifications in paragraph (2) shall

not apply to—

ø(A) any item acquired by the corporation in a transaction to which section 381 applies, and

ø(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.

ø(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).

ø(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.¿

96

SEC. 56. ADJUSTMENTS IN COMPUTING ALTERNATIVE MINIMUM TAXABLE INCOME.

ø(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 øclause (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 øclause (ii)¿ clauses (ii) and (iii) shall continue to apply.

* * * * * * *

(iii) ADDITIONAL ALLOWANCE FOR CERTAIN PROPERTY

ACQUIRED AFTER SEPTEMBER 10, 2001, AND BEFORE SEP- TEMBER 11, 2004.—The deduction under section 168(k)

shall be allowed.

* * * * * * *

ø(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 øparagraph (2) or subsection (b)(2)¿ paragraph (2) or (9) applies) shall be determined

on the basis of the treatment prescribed in paragraph (1), (2),

øor (5), or subsection (b)(2)¿ (5), or (9), whichever applies.

* * * * * * *

ø(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):¿

ø(1)¿ (8) LIMITATION ON DEDUCTIONS.—

(A) * * *

* * * * * * *

ø(2)¿ (9) CIRCULATION AND RESEARCH AND EXPERIMENTAL EX- PENDITURES.— (A) * * *

* * * * * * *

ø(C) SPECIAL RULE FOR PERSONAL HOLDING COMPANIES.—

In the case of circulation expenditures described in section

173, the adjustments provided in this paragraph shall

97

apply also to a personal holding company (as defined in

section 542).¿

ø(D)¿ (C) EXCEPTION FOR CERTAIN RESEARCH AND EXPER- IMENTAL 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.

ø(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.

ø(c) ADJUSTMENTS APPLICABLE TO CORPORATIONS.—In determining the amount of the alternative minimum taxable income of

a corporation, the following treatment shall apply:

ø(1) ADJUSTMENT FOR ADJUSTED CURRENT EARNINGS.—Alternative minimum taxable income shall be adjusted as provided

in subsection (g).

ø(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)— ø(A) subparagraphs (A), (B), and (C) of section 7518(c)(1)

(and the corresponding provisions of such section 607 shall

not apply to— ø(i) any amount deposited in such fund after December 31, 1986, or

ø(ii) any earnings (including gains and losses) after

December 31, 1986, on amounts in such fund, and

ø(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.

ø(3) SPECIAL DEDUCTION FOR CERTAIN ORGANIZATIONS NOT

ALLOWED.—The deduction determined under section 833(b)

shall not be allowed.¿

ø(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— ø(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—

98

(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

* * * * * * *

ø(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) * * *

* * * * * * *

ø(g) ADJUSTMENTS BASED ON ADJUSTED CURRENT EARNINGS.— ø(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—

ø(A) the adjusted current earnings of the corporation,

over

ø(B) the alternative minimum taxable income (determined without regard to this subsection and the alternative tax net operating loss deduction).

ø(2) ALLOWANCE OF NEGATIVE ADJUSTMENTS.—

ø(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—

ø(i) the amount referred to in subparagraph (B) of

paragraph (1), over

ø(ii) the amount referred to in subparagraph (A) of

paragraph (1).

ø(B) LIMITATION.—The reduction under subparagraph

(A) for any taxable year shall not exceed the excess (if any)

of—

ø(i) the aggregate increases in alternative minimum

taxable income under paragraph (1) for prior taxable

years, over

ø(ii) the aggregate reductions under subparagraph

(A) of this paragraph for prior taxable years.

ø(3) ADJUSTED CURRENT EARNINGS.—For purposes of this

subsection, the term ‘‘adjusted current earnings’’ means the alternative minimum taxable income for the taxable year—

99

ø(A) determined with the adjustments provided in paragraph (4), and

ø(B) determined without regard to this subsection and

the alternative tax net operating loss deduction.

ø(4) ADJUSTMENTS.—In determining adjusted current earnings, the following adjustments shall apply:

ø(A) DEPRECIATION.—

ø(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).

ø(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—

ø(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

ø(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).

ø(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—

ø(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

ø(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).

ø(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.

100

ø(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).

ø(B) INCLUSION OF ITEMS INCLUDED FOR PURPOSES OF

COMPUTING EARNINGS AND PROFITS.—

ø(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—

ø(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

ø(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).

ø(ii) INCLUSION OF BUILDUP IN LIFE INSURANCE CONTRACTS.—In the case of any life insurance contract—

ø(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

ø(II) there shall be allowed as a deduction that

portion of any premium which is attributable to

insurance coverage.

ø(C) DISALLOWANCE OF ITEMS NOT DEDUCTIBLE IN COMPUTING EARNINGS AND PROFITS.—

ø(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.

ø(ii) SPECIAL RULE FOR CERTAIN DIVIDENDS.—

ø(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).

101

ø(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.

ø(iii) TREATMENT OF TAXES ON DIVIDENDS FROM 936

CORPORATIONS.— ø(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.

ø(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.

ø(III) TREATMENT OF TAXES IMPOSED ON 936 COR- PORATION.—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).

ø(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).

ø(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).

ø(VI) APPLICATIONS TO SECTION 30A CORPORA- TIONS.—References in this clause to section 936

shall be treated as including references to section

30A.

102

ø(iv) SPECIAL RULE FOR CERTAIN DIVIDENDS RE- CEIVED 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).

ø(D) CERTAIN OTHER EARNINGS AND PROFITS ADJUST- MENTS.—

ø(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.

ø(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.

ø(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.

ø(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.

ø(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.

ø(F) DEPLETION.— ø(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.

ø(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).

ø(G) TREATMENT OF CERTAIN OWNERSHIP CHANGES.—If— ø(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

ø(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

103

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.

ø(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.

ø(I) TREATMENT OF CHARITABLE CONTRIBU- TIONS.—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.

ø(5) OTHER DEFINITIONS.—For purposes of paragraph (4)— ø(A) EARNINGS AND PROFITS.—The term ‘‘earnings and

profits’’ means earnings and profits computed for purposes

of subchapter C.

ø(B) TREATMENT OF ALTERNATIVE MINIMUM TAXABLE IN- COME.—The treatment of any item for purposes of computing alternative minimum taxable income shall be determined without regard to this subsection.

ø(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 øFOR INDEPENDENT PRODUCERS¿.—In the

case of any oil or gas well—

ø(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 ø42¿ 28 percent of the

amount excluded from gross income for the taxable year under

section 1202. øIn 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’’.¿

* * * * * * *

104

SEC. 58. DENIAL OF CERTAIN LOSSES.

(a) DENIAL OF FARM LOSS.— (1) * * *

* * * * * * *

ø(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.¿

ø(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) * * *

ø(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.¿

ø(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.

ø(d)¿ (c) APPORTIONMENT OF DIFFERENTLY TREATED ITEMS IN

CASE OF CERTAIN ENTITIES.— (1) * * *

* * * * * * *

ø(e)¿ (d) OPTIONAL 10-YEAR WRITE-OFF OF CERTAIN TAX PREF- ERENCES.— (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 ø(determined without regard to

section 291)¿ for the taxable year in which paid or incurred

under—

(A) * * *

* * * * * * *

ø(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.¿

ø(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.

ø(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

105

for the taxable year with the adjustments of sections 56, 57, and

58.

ø(i)¿ (g) SPECIAL RULE FOR AMOUNTS TREATED AS TAX PREF- ERENCE.—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.

ø(j)¿ (h) TREATMENT OF UNEARNED INCOME OF MINOR CHIL- DREN.—

(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—

* * * * * * *

øPART VII—ENVIRONMENTAL TAX

ø59A. Environmental tax.

øSEC. 59A. ENVIRONMENTAL TAX.

ø(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— ø(1) the modified alternative minimum taxable income of

such corporation for the taxable year, over

ø(2) $2,000,000.

ø(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— ø(1) the alternative tax net operating loss deduction (as defined in section 56(d)) and

ø(2) the deduction allowed under section 164(a)(5).

ø(c) EXCEPTION FOR RIC’S AND REIT’S.—The tax imposed by subsection (a) shall not apply to— ø(1) a regulated investment company to which part I of subchapter M applies, and

ø(2) a real estate investment trust to which part II of subchapter M applies.

ø(d) SPECIAL RULES.—

ø(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.

ø(2) SECTION 15 NOT TO APPLY.—Section 15 shall not apply

to the tax imposed by this section.

ø(e) Application of Tax.—

ø(1) IN GENERAL.—The tax imposed by this section shall

apply to taxable years beginning after December 31, 1986, and

before January 1, 1996.

ø(2) EARLIER TERMINATION.—The tax imposed by this section

shall not apply to taxable years—

ø(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

ø(B) beginning after the calendar year which includes

the termination date under paragraph (3) of section

4611(e).¿

106

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 UN- EMPLOYMENT 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),

107

(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) * * *

* * * * * * *

ø(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—

108

(i) any municipal wastewater treatment plant,

(ii) any telephone distribution plant and comparable

equipment used for 2-way exchange of voice and data

communications, øand¿

(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)ø.¿, 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 imVerDate 11-MAY-2000 17:55 Oct 18, 2001 Jkt 099006 PO 00000 Frm 00108 Fmt 6659 Sfmt 6603 E:\HR\OC\HR251.XXX pfrm07 PsN: HR251
109

provement property (if at all) only so long as such improvement is held by such person.

(ii) EXCEPTION FOR CHANGES IN FORM OF BUSI- NESS.—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—

110

(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

111

(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.

ø(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 ø59(e)¿ 59(d).

SEC. 174. RESEARCH AND EXPERIMENTAL EXPENDITURES.

(a) * * *

* * * * * * *

112

(f) CROSS REFERENCES.— (1) * * *

(2) For election of 10-year amortization of expenditures allowable

as a deduction under subsection (a), see section ø59(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:

øIf 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,

ø2001¿ 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 ø2002¿ 2004,

(ii) 50 percent in the case of property placed in service in calendar year ø2003¿ 2005, and

(iii) 75 percent in the case of property placed in

service in calendar year ø2004¿ 2006.

* * * * * * *

(f) TERMINATION.—This section shall not apply to any property

placed in service after December 31, ø2004¿ 2006.

* * * * * * *

113

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 ø2002¿ 2003, or

(B) the first calendar year before ø2002¿ 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 ø2002¿

2003.—In the case of a cut-off year before ø2002¿ 2003— (i) * * *

* * * * * * *

(j) DETERMINATION OF WHETHER NUMERICAL LIMITS ARE EX- CEEDED.—

(1) * * *

(2) DETERMINATION OF WHETHER LIMIT EXCEEDED FOR ø1998, 1999, OR 2001¿ 1998, 1999, 2001, OR 2002.— (A) IN GENERAL.—The numerical limitation for ø1998,

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 ø1998, 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, øand 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—

114

(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 ø59(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 ø59(E)¿ 59(D).—Paragraphs

(2) and (3) shall apply to any amount allowable as a deduction

under section ø59(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). øParagraph (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)

* * * * * * *

115

SEC. 280F. LIMITATION ON DEPRECIATION FOR LUXURY AUTOMOBILES; LIMITATION WHERE CERTAIN PROPERTY USED

FOR PERSONAL PURPOSES.

(a) LIMITATION ON AMOUNT OF DEPRECIATION FOR LUXURY AUTO- MOBILES.— (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) * * *

* * * * * * *

ø(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).¿

ø(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

* * * * * * *

116

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) * * *

* * * * * * *

ø(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

* * * * * * *

117

SEC. 613A. LIMITATIONS ON PERCENTAGE DEPLETION IN CASE OF OIL

AND GAS WELLS.

(a) * * *

* * * * * * *

(c) EXEMPTION FOR INDEPENDENT PRODUCERS AND ROYALTY OWN- ERS.—(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, ø2002¿

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 ø59(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 ø59(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) * * *

118

(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) * * *

* * * * * * *

øIf 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) * * *

* * * * * * *

øNothing 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

ø(B) such adjustments in the application of this section

as may be necessary to take into account the tax imposed

by section 55, and¿

ø(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) * * *

* * * * * * *

ø(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.¿

119

ø(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, ø55, 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 øduring 2000 or 2001¿ during 2000, 2001, 2002, or 2003.

* * * * * * *

120

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— ø(A) section 59A (relating to environmental tax),¿

ø(B)¿ (A) section 531 (relating to the tax on accumulated

earnings),

ø(C)¿ (B) section 541 (relating to personal holding company tax), or

ø(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, 1998ø, 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.

øIf 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) * * *

* * * * * * *

121

(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, 1998ø, 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) * * *

ø(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—

ø(i) the net surrender value of such contract (as defined in section 807(e)(1)(A)), or

ø(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 øsections 11

and 55¿ section 11 if such amounts were received by a domestic corporation, and

* * * * * * *

122

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 ø59(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) * * *

* * * * * * *

123

(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, ø2000, 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, ø20¿ 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

124

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 taxø, and¿. ø(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). øIn 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) * * *

125

(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) * * *

* * * * * * *

126

(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—

ø(A) The sum of—

ø(i) the tax imposed by section 11 or 1201(a), or subchapter L of chapter 1, whichever is applicable,

ø(ii) the tax imposed by section 55, plus

ø(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 øsubsection

(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 øsubsection (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 øDecember 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.

127

(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 incomeø, 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,

128

(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 incomeø, alternative minimum taxable income, and modified alternative minimum taxable income¿ shall be placed on

an annualized basis under regulations prescribed by

the Secretary.

* * * * * * *

ø(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—

ø(A) the sum of—

ø(i) the tax imposed by section 11 or 1201(a), or subchapter L of chapter 1, whichever applies,

ø(ii) the tax imposed by section 55,

ø(iii) the tax imposed by section 59A, plus

ø(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) * * *

* * * * * * *

129

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 ø20¿ 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,

ø2002¿ 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, ø2001¿ 2003.

* * * * * * *

130

SECTION 607 OF THE MERCHANT MARINE ACT, 1936

SEC. 607. (a)***

* * * * * * *

(h) Tax Treatment of Nonqualified Withdrawals.

(1) * * *

* * * * * * *

(6) NONQUALIFIED WITHDRAWALS TAXED AT HIGHEST MAR- GINAL 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 ø20¿ 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) * * *

* * * * * * *

ø(e) ELECTION TO RECOGNIZE GAIN ON ASSETS HELD ON JANUARY

1, 2001.—For purposes of the Internal Revenue Code of 1986—

ø(1) IN GENERAL.—A taxpayer other than a corporation may

elect to treat—

ø(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

ø(B) any other capital asset or property used in the

trade or business (as defined in section 1231(b) of the InVerDate 11-MAY-2000 17:55 Oct 18, 2001 Jkt 099006 PO 00000 Frm 00130 Fmt 6659 Sfmt 6602 E:\HR\OC\HR251.XXX pfrm07 PsN: HR251
131

ternal 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).

ø(2) TREATMENT OF GAIN OR LOSS.—

ø(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.

ø(B) Any loss resulting from an election under paragraph (1) shall not be allowed for any taxable year.

ø(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.

ø(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 øand before January 1, 2005¿.

* * * * * * *

TITLE X—REVENUES

* * * * * * *

132

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, ø2002¿ 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 unemVerDate 11-MAY-2000 17:55 Oct 18, 2001 Jkt 099006 PO 00000 Frm 00132 Fmt 6659 Sfmt 6602 E:\HR\OC\HR251.XXX pfrm07 PsN: HR251
133

ployment 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)***

* * * * * * *

ø(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—

ø(i) to the extent of any amounts not in excess of

$100,000,000, be subject to subparagraph (B), and

ø(ii) to the extent of any amounts in excess of $100,000,000,

be subject to subparagraph (C).

ø(B) Paragraphs (1) and (2) shall apply with respect to any

amounts described in subparagraph (A)(i), except that—

ø(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—

ø(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

ø(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

ø(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.

ø(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 FedVerDate 11-MAY-2000 17:55 Oct 18, 2001 Jkt 099006 PO 00000 Frm 00133 Fmt 6659 Sfmt 6602 E:\HR\OC\HR251.XXX pfrm07 PsN: HR251
134

eral 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) * * *

* * * * * * *

øAny 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

135

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—

136

(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.

* * * * * * *

(137)

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 postSeptember 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

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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 shortand 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

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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.

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