SUMMARY OF TAX PROVISIONS

CONTAINED IN THE PRESIDENT’S

FISCAL YEAR 2002 BUDGET PROPOSAL

Prepared by the Staff

of the

JOINT COMMITTEE ON TAXATION

JCX-30-01

May 4, 2001
i

CONTENTS

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

A. The President’s Agenda for Tax Relief Presented to Congress on February 8th................ 2

1. Create new 10-percent individual income tax rate.............................................................. 2

2. Reduce individual income tax rates .................................................................................... 2

3. Increase the child tax credit ................................................................................................ 3

4. Reduction in the marriage penalty ...................................................................................... 3

5. Provide charitable contribution deduction for nonitemizers............................................... 4

6. Permit tax-free withdrawals from individual retirement arrangements (“IRAs”) for 

charitable contributions ...................................................................................................... 4

7. Raise the cap on corporate charitable contributions ........................................................... 4

8. Increase and expand education savings accounts ............................................................... 4

9. Permanently extend the research and experimentation (R&E) tax credit........................... 5

10. Phase out and repeal of estate, gift, and generation-skipping transfer taxes .................... 5

B. Additional Tax Incentives................................................................................................... 7

1. Education proposals............................................................................................................ 7

(a) Allow teachers to deduct out-of-pocket classroom expenses........................................ 7

(b) Allow tax-free distributions from qualified State tuition plans for certain higher 

education expenses and allow private colleges to offer prepaid tuition plans .............. 7

(c) Allow States to issue tax-exempt private activity bonds for school construction......... 7

2. Health and long-term care proposals.................................................................................. 8

(a) Refundable tax credit for the purchase of health insurance........................................... 8

(b) Provide an above-the-line deduction for long-term care insurance premiums ............. 8

(c) Allow up to $500 in unused benefits in a health flexible spending arrangement to be 

carried forward to the next year.................................................................................... 8

(d) Provide additional choice with regard to unused benefits in a health flexible spending 

arrangement................................................................................................................... 9

(e) Permanently extend and reform Archer medical savings accounts............................... 9

(f) Provide an additional personal exemption to home caretakers of family members ...... 9

(g) Provide tax relief for awards under certain health education programs ........................ 9

3. Exclude from income the value of employer-provided computers, software, and 

peripherals provided to employees with disabilities........................................................... 9

4. Permanently extend and increase the adoption tax credit................................................. 10

5. Establish Farm, Fish, and Ranch Risk Management (FFARRM) savings accounts......... 10

6. Provide tax credit for developers of affordable single-family housing ............................ 10

7. Establish individual development accounts ...................................................................... 10

8. Environmental and energy proposals................................................................................ 11

(a) Permanently extend expensing of brownfields remediation costs............................... 11

(b) Exclude 50 percent of gains from the sale of property for conservation purposes..... 11

(c) Extend and modify the tax credit for producing electricity from certain sources....... 11

(d) Provide tax credit for residential solar energy systems............................................... 11

(e) Modify treatment of nuclear decommissioning funds................................................. 11

C. One-Year Extension of Provisions Expiring in 2001........................................................ 13

D. Disclosure of Return Information for Administration of Certain Veterans’ Programs .... 14
1

INTRODUCTION

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

summary of the tax provisions contained in the President’s Fiscal Year 2002 Budget Proposal. 

This document generally follows the order of the proposals as included in the Department of 

Treasury explanation of the proposals.2

 

1

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

Tax Provisions Contained in the President’s Fiscal Year 2002 Budget Proposal (JCX-30-01), 

May 4, 2001.

2

 See Department of the Treasury, General Explanations of the Administration’s Fiscal 

Year 2002 Tax Relief Proposals, April 2001.
2

SUMMARY OF TAX PROVISIONS CONTAINED IN THE PRESIDENT’S

FISCAL YEAR 2002 BUDGET PROPOSAL

A. The President’s Agenda for Tax Relief Presented to Congress on February 8th

1. Create new 10-percent individual income tax rate

The President’s budget proposal would establish a new 10-percent regular income tax 

rate bracket for a portion of taxable income that is currently subject to tax at a 15-percent rate. 

The 10-percent rate would be phased in from 2002 through 2006, as shown in Table 1, below. 

After 2006, the rate brackets would be adjusted annually for inflation.

Table 1.--Proposed New 10-Percent Rate Bracket

Taxable Income

Calendar Year Single 

Individuals

Heads of 

Households

Married Filing 

Joint Returns

Proposed New Rate

2002 0-$6,000 0-$10,000 0-$12,000 14 percent

2003 0-$6,000 0-$10,000 0-$12,000 13 percent

2004 0-$6,000 0-$10,000 0-$12,000 12 percent

2005 0-$6,000 0-$10,000 0-$12,000 11 percent

2006 0-$6,000 0-$10,000 0-$12,000 10 percent

2007 and later Adjust annually for inflation 10 percent

2. Reduce individual income tax rates

The President’s budget proposal would replace the five present-law individual statutory 

rates (15 percent, 28 percent, 31 percent, 36 percent, and 39.6 percent) with four individual 

statutory rates (10 percent, 15 percent, 25 percent, and 33 percent). The 10-percent rate and 15-

percent rate are described, above. Table 2, below, shows the schedule of proposed other regular 

income tax rate reductions under the budget proposal.

Table 2.--Proposed Regular Income Tax Rate Reductions

Calendar Year 28% Rate 

Reduced to:

31% Rate 

Reduced to:

36% Rate 

Reduced to:

39.6% Rate 

Reduced to:

2002 27% 30% 35% 38%

2003 27% 29% 35% 37%

2004 26% 28% 34% 36%

2005 26% 27% 34% 35%

2006 and later 25% 25% 33% 33%

The tax rate reductions also would apply to estates and trusts.
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3. Increase the child tax credit

The President’s budget proposal would increase the size of the child tax credit from $500 

to $1,000. This increase would be phased in as shown in Table 3, below.

Table 3.--Proposed Increase in Child Credit

Year Maximum Per Child Credit

2002 $600

2003 $700

2004 $800

2005 $900

2006 and later $1,000

The beginning point of the phase-out range of the child tax credit also would be increased 

to $200,000 of modified adjusted gross income for married couples filing a joint return, 

unmarried individuals, and heads of households ($100,000 of modified adjusted gross income for 

married couples filing separate returns). This increase would be phased in over five years (2002-

2006). Starting in 2002, the present-law beginning points of the child tax credit phase-out range 

($110,000 for married couples filing jointly; $75,000 for unmarried individuals and heads of 

households; and $55,000 for a married person filing separately) would be increased each year by 

$18,000 for married couples filing a joint return; $25,000 for unmarried individuals and heads of 

households; and $9,000 for married couples filing separate returns, respectively.

The proposal would reduce the phase-out rate of the child tax credit from $50 to $20 for 

each $1,000 (or fraction thereof) of the taxpayer’s modified adjusted gross income above the 

beginning point of the applicable phase-out range, effective for taxable years beginning after 

December 31, 2005.

The proposal would allow the child tax credit to be claimed both for regular income tax 

and alternative minimum tax purposes. In addition, the proposal would provide that refundable 

credits are not reduced by the alternative minimum tax.

4. Reduction in the marriage penalty

The President’s budget proposal would create a two-earner deduction for married couples 

filing a joint return, effective for taxable years beginning after December 31, 2001. This 

deduction would be an above-the-line deduction equal to 10-percent of the lesser earning 

spouse’s annual earned income up to $30,000. Earned income would be defined as the sum of 

wages, salaries, and net income from self-employment less certain deductions. The proposal 

would be phased in, as indicated in Table 4, below.
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Table 4.--Phase-In of Two-Earner Deduction

Year Maximum Earned

Income Amount

2002 $6,000

2003 $12,000

2004 $18,000

2005 $24,000

2006 and later $30,000

5. Provide charitable contribution deduction for nonitemizers

The President’s budget proposal would allow taxpayers who do not itemize their 

deductions to deduct their charitable contributions (up to the amount of the standard deduction) 

in addition to their standard deduction. The proposal would be effective for charitable 

contributions made in taxable years beginning after December 31, 2001, and would be phased in 

between 2002 and 2006.

6. Permit tax-free withdrawals from individual retirement arrangements (“IRAs”) for 

charitable contributions

The President’s budget proposal would permit individuals to exclude from gross income 

distributions made after age 59-1/2 from a traditional or Roth IRA, if the distribution is made 

directly to a qualified charitable organization. No deduction would be allowed for otherwise 

taxable amounts that are excluded from income under the proposal. This proposal would be 

effective for distributions after December 31, 2001.

7. Raise the cap on corporate charitable contributions

The President’s budget proposal would increase the present-law 10-percent of net income 

limit on charitable contributions by corporations to 15 percent, effective for contributions 

deductible in taxable years beginning after December 31, 2001.

8. Increase and expand education savings accounts

The President’s budget proposal would (1) allow tax-free distributions from education 

savings accounts (referred to as education IRAs under present law) for certain elementary, 

secondary, and after-school program expenses; (2) phase in an increase in the annual 

contribution limit to education savings accounts from $500 to $5,000; and (3) permit a tax-free 

distribution from an education savings account in the same year that a Hope or Lifetime 

Learning credit is claimed as long as the distribution is not used for the same expenses for which 

the credit is claimed. Table 5, below, shows the proposed phase in of the increase in the annual 

contribution limit to education savings accounts.
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Table 5.--Proposed Increase in Education Savings Account Annual Contribution Limit

Year Annual Contribution Limit

2002 $1,000

2003 $2,000

2004 $3,000

2005 $4,000

2006 and later $5,000

The proposal would be effective for contributions to and distributions from education 

savings accounts after December 31, 2001.

9. Permanently extend the research and experimentation (R&E) tax credit

The President’s budget proposal would make permanent the section 41 research and 

experimentation tax credit. The credit is scheduled to expire under present law on June 30, 2004.

10. Phase out and repeal of estate, gift, and generation-skipping transfer taxes

In general

The President’s budget proposal would repeal estate, gift, and generation-skipping 

transfer taxes in 2009. Prior to repeal, the estate, gift, and generation-skipping transfer taxes 

would be phased out between 2002 and 2008.

In 2002, the 5-percent surtax (which phases out the benefit of the graduated rates) would 

be repealed. Moreover, each estate and gift tax rate would be reduced by 5 percentage points in 

2002, 10 percentage points in 2004, 15 percentage points in 2005, 20 percentage points in 2006, 

30 percentage points in 2007, and 40 percentage points in 2008. No estate and gift tax rate 

would fall below the highest statutory income tax rate generally applicable to long-term capital 

gains. The highest estate and gift tax rate in effect for a given year would be the generationskipping transfer tax rate for that year. In 2008, the unified credit exemption equivalent amount 

would be increased to $1.3 million. Technical modifications also would be made to the 

generation-skipping transfer tax.

In 2009, the estate, gift, and generation-skipping transfer taxes would be eliminated. 

After repeal, the basis of assets received from a decedent generally would be the lower of the fair 

market value on the date of the decedent’s death or the adjusted basis of the property 

immediately before the death of the decedent. However, an executor would be permitted to 

increase the basis by the sum of: (1) a total of $1.3 million; (2) any of the decedent’s unused 

capital loss carryforwards, unused net operating loss carryforwards, and the difference between 

the decedent’s basis and fair market value on assets that are assigned a fair market value basis; 

and (3) $3 million of property transferred to a surviving spouse. The $1.3 million and $3 million 

amounts would be indexed for inflation after 2009. No basis could be added to: (1) property 

acquired by the decedent by gift (other than from a spouse) during the three-year period ending 

on the date of the decedent’s death; (2) property that constitutes a right to receive income in 
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respect of a decedent; or (3) stock of certain foreign entities (e.g., foreign personal holding 

companies and domestic international sales corporations).

The President’s budget proposal also would extend the present-law exclusion of the gain 

on the sale of a principal residence to an heir who sells the decedent’s residence within three 

years of the decedent’s death. Moreover, the proposal provides that distribution by an estate of 

an asset secured by indebtedness would not be a disposition; there would be limitations on 

income tax deductions of the estate; and rules would be provided to prevent disparate treatment 

of pecuniary, fractional, and formula bequests. In addition, there would be a provision for 

disclaimer of bequests within nine months of death and treatment of art inherited from the artist 

as a capital asset. There also would be a general anti-abuse rule.

Reporting requirements

A donor would be required to report to the IRS and beneficiaries the basis, character, and 

other information regarding the transfer of non-cash assets with a value in excess of $25,000. In 

addition, for transfers at death of non-cash assets in excess of $1.3 million and for appreciated 

property in excess of $25,000 received by a decedent within three years of death, the executor 

would be required to report to the IRS and beneficiaries the basis, character, and other 

information regarding the transfer of such property. Penalties would apply for the failure to 

report to the IRS and beneficiaries the required information.
7

B. Additional Tax Incentives

1. Education proposals

(a) Allow teachers to deduct out-of-pocket classroom expenses

The President’s budget proposal would allow an above-the-line deduction of up to $400 

for out-of-pocket expenses incurred by full-time schoolteachers (including principals, 

counselors, teacher’s aides, librarians and coaches) at grade levels kindergarten through twelfth 

grade. Eligible expenses would include books, supplies, and equipment related to classroom 

instruction that become school property. Additionally, teacher training expenses related to 

current teaching positions would qualify for the deduction. The proposal would be effective for 

expenditures made after December 31, 2001.

(b) Allow tax-free distributions from qualified State tuition plans for certain higher 

education expenses and allow private colleges to offer prepaid tuition plans

The President’s budget proposal would allow tax-free distributions from qualified State 

tuition plans for certain higher education expenses and allow private colleges to offer prepaid 

tuition plans (but not savings account plans). The definition of “qualified higher education 

expenses” eligible for the exclusion would be limited to (1) tuition and fees required for 

enrollment or attendance, (2) expenses for books, supplies, and equipment incurred in connection 

with such enrollment or attendance, and (3) certain room and board expenses for a student 

enrolled at least half time. “Qualified higher education expenses” would not include expenses 

for education involving sports, games, or hobbies, unless the education is part of the student’s 

degree program or is taken to acquire or improve job skills of the individual.

The proposal would allow a qualified tuition program to permit up to three qualified 

account transfers without violating the prohibition on investment direction and would permit a 

first cousin of the original beneficiary to be considered a “member of the family” eligible to 

benefit from a tax-free rollover. The proposal would allow an education tax credit and/or 

distribution from an education savings account in the same year as a tax-free withdrawal from a 

qualified tuition program, provided the distribution is not used for the same qualified higher 

education expenses. The proposal generally would provide a 10-percent additional tax on the 

earnings portion of any nonqualified withdrawal. A 20-percent additional tax would be imposed 

on any earnings in excess of $5,000 on nonqualified withdrawals. Finally, the proposal would 

provide a cumulative lifetime cap on excludable earnings from all qualified tuition programs 

with respect to a beneficiary. The cap would be equal to 50 times the maximum grant authorized 

under the Federal Pell Grant Program.

The proposal would be effective for taxable years beginning after December 31, 2001.

(c) Allow States to issue tax-exempt private activity bonds for school construction

The President’s budget proposal would authorize a new category of exempt facility bonds 

to finance “qualified public educational facilities,” which would be owned by a for-profit entity 

under a public-private partnership agreement with a State or local educational agency. The 

facilities would have to be operated by a public educational agency as part of a system of public 
8

schools. A separate annual per-State volume limit would apply equal to the greater of $10 per 

resident or $5 million. The proposal would be effective for bonds issued after December 31, 

2001.

2. Health and long-term care proposals

(a) Refundable tax credit for the purchase of health insurance

The President’s budget proposal would create a refundable income tax credit for health 

insurance purchased for individuals who are under age 65 and do not participate in a public or 

employer-provided health plan. Policies eligible for the credit would have to meet certain 

requirements. The amount of the credit would be 90 percent of premiums up to a maximum of 

$1,000 if one individual is covered by the policy or $2,000 if two or more individuals are 

covered. The credit would be phased out for an individual taxpayer with no dependents who has 

adjusted gross income between $15,000 and $30,000. For all other taxpayers, the credit would 

be phased out for adjusted gross income between $30,000 and $45,000, if the policy covers one 

individual, or adjusted gross income between $30,000 and $60,000, if the policy covers two or 

more individuals. The phase-out amounts would be indexed. The credit could be claimed on the 

individual’s tax return or as part of the premium payment process. A phased-in credit of up to 

$750 for one covered individual ($1,500 for two or more individuals) would be available for 

2002 and 2003. The full credit would be effective for taxable years beginning after December 

31, 2003. 

(b) Provide an above-the-line deduction for long-term care insurance premiums

The President's budget proposal would provide an above-the-line deduction to individuals 

for the amount of premiums paid for qualified long-term care insurance. The proposed 

deduction would be subject to the present-law dollar limits applicable to the deduction of 

qualified long-term care insurance premiums as a medical expense. The proposed deduction 

would apply to the employee's share of premiums for employer-provided long-term care 

insurance, provided the employee's share is at least 50 percent. The proposal would impose 

unspecified new standards for qualified long-term care insurance contracts. The proposal would 

be effective for taxable years beginning after December 31, 2001, subject to a phase-in period. 

The deduction would be allowed for 25 percent of premiums in 2002, 2003 and 2004, 35 percent 

in 2005, 65 percent in 2006, and 100 percent for 2007 and thereafter.

(c) Allow up to $500 in unused benefits in a health flexible spending arrangement to 

be carried forward to the next year

The President’s budget proposal would allow up to $500 of unused amounts in an 

employee’s health flexible spending arrangement to be carried over to the employee’s account in 

the health flexible spending arrangement for the next year. The proposal would be effective for 

plan years beginning after December 31, 2001.
9

(d) Provide additional choice with regard to unused benefits in a health flexible 

spending arrangement

The President’s budget proposal would permit unused amounts of up to $500 in an 

employee’s health flexible spending arrangement to be distributed to the employee or contributed 

to a 401(k) or similar plan or to an Archer medical savings account (subject to the normal tax 

rules for contributions to these arrangements). The proposal would be effective for plan years 

beginning after December 31, 2001.

(e) Permanently extend and reform Archer medical savings accounts

The President’s budget proposal would (1) make Archer medical savings accounts 

permanent, (2) remove the limit on the number of Archer medical savings accounts that may be 

established, (3) allow all employees and individuals covered by a high deductible plan to 

contribute to an Archer medical savings account, (4) modify the definition of high deductible 

health plan, (5) increase the amount of permissible contributions, and (6) permit contributions to 

be made through a cafeteria plan. The proposal would be effective for taxable years beginning 

after December 31, 2001.

(f) Provide an additional personal exemption to home caretakers of family members

The President’s budget proposal would allow an additional personal exemption to a 

taxpayer who maintains a household that includes certain qualified family members. Qualified 

family members would include any individual with long-term care needs who: (1) is a spouse of 

the taxpayer, an ancestor of the taxpayer, or the spouse of such an ancestor; and (2) is a member 

of the taxpayer’s household for the entire taxable year. In general, an individual would be 

considered to have long-term care needs if the individual was certified by a licensed physician as 

being unable to perform for at least 180 consecutive days at least two activities of daily living 

without substantial assistance from another individual due to a loss of functional capacity. 

Activities of daily living would be eating, toileting, transferring, bathing, dressing, and 

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

2001.

(g) Provide tax relief for awards under certain health education programs

The President’s budget proposal would exclude from income as a scholarship amounts 

received under the National Health Service Corps Scholarship Program or the Armed Forces 

Health Professions Scholarship and Financial Assistance Program. The proposal would be 

effective for education awards received after December 31, 2001.

3. Exclude from income the value of employer-provided computers, software, and 

peripherals provided to employees with disabilities

The President’s budget proposal would allow an individual with a disability to exclude 

from income the value of computers, software and other equipment provided by the individual’s 

employer if the equipment is necessary for the individual to perform work for the employer at 

home and the employee makes substantial use of the equipment to perform work for the 

employer. The exclusion would apply to all use of the equipment including personal use and use 
10

in a trade or business other than working as an employee of the employer. The proposal would 

be effective for taxable years beginning after December 31, 2001.

4. Permanently extend and increase the adoption tax credit

The President’s budget proposal would make the adoption tax credit permanent for all 

adoptions. The maximum credit would be increased to $7,500 ($8,500 for special needs 

adoptions). The proposal would be effective after December 31, 2001.

5. Establish Farm, Fish, and Ranch Risk Management (FFARRM) savings accounts

The President’s budget proposal would allow taxpayers engaged in an eligible business to 

establish FFARRM accounts. An eligible business would be any trade or business of farming, 

ranching, or commercial fishing businesses in which the taxpayer actively participates. 

Contributions to a FFARRM account would be deductible and would be limited to 20 percent of 

the taxable income that is attributable to the eligible business. A FFARRM account would be 

taxed as a grantor trust and any earnings would be required to be distributed currently (and thus 

taxed currently to the farmer or fisherman who established the account). Amounts may remain 

on deposit in a FFARRM account for up to five years. Distributions of contributions to 

FFARRM accounts would be includible in the gross income of the account owner at the time of 

distribution. Any amount that has not been distributed by the close of the fourth year following 

the year of deposit would be deemed to be distributed and includible in the gross income of the 

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

2001.

6. Provide tax credit for developers of affordable single-family housing

The President’s budget proposal would create a single-family housing tax credit similar 

to the present-law low-income rental housing tax credit. Under the proposal, the credit would 

provide $1.75 of tax credit authority annually to each State for every resident in the State. The 

$1.75 amount would be indexed for inflation. Each State (or local government) would allocate 

its credit authority to qualified developers or investor partnerships who would claim the credit 

for the five years after the qualified property is sold to a qualified buyer. The maximum credit 

for each unit could not exceed the present value of 50 percent of the qualifying costs of that 

housing unit. Qualified homebuyers would have incomes of 80 percent (70 percent for families 

with less than three members) or less of area median income. A qualified homebuyer would be 

subject to recapture if he or she sells to a nonqualified buyer within three years of the initial sale 

of the qualified unit. The proposal would be effective beginning in calendar year 2002.

7. Establish individual development accounts

The President’s budget proposal would create a tax credit to defray the cost to financial 

institutions of establishing individual development accounts, contributing matching funds to 

individual development accounts, and providing financial education to account holders. The 

credit would consist of the following three components: (1) a $70 per account credit to offset the 

cost of establishing the account providing basic financial literacy training; (2) a $30 per account 

credit per year to offset the ongoing costs to the financial institution of maintaining the account; 

and (3) a 90-percent credit for up to $300 contributed to each account annually, for a maximum 
11

annual per account credit of $270. The $70 credit would be effective with respect to individual 

development accounts established between 2003 and 2007. The annual maintenance credit and 

the credit for annual matching contributions would be effective for years between 2003 and 

2009.

8. Environmental and energy proposals

(a) Permanently extend expensing of brownfields remediation costs

The President’s budget proposal would make permanent the expensing of qualified 

brownfields remediation expenditures permitted under section 198, which is scheduled to expire 

under present law for expenditures after December 31, 2003.

(b) Exclude 50 percent of gains from the sale of property for conservation purposes

The President’s budget proposal would provide for an exclusion from income for 50 

percent of the gain from the sale of land (or an interest in land or water) sold for a qualified 

conservation purpose to a governmental unit or a charity that is a qualified conservation 

organization. The proposal would be effective for sales after the date of first committee action.

(c) Extend and modify the tax credit for producing electricity from certain sources

The President’s budget proposal would extend the placed-in-service date for qualifying 

facilities producing electricity from wind and biomass to facilities placed in service before 

January 1, 2005. The placed-in-service date for facilities producing electricity from chicken 

litter would remain facilities placed in service before January 1, 2002. In addition, the proposal 

would expand the definition of qualifying biomass to include any solid nonhazardous, cellulosic 

waste material that is segregated from other waste materials and is derived from certain forest 

related resources, waste pallets, crates and certain other dunnage, and certain agricultural 

sources. The proposal would permit the credit to be claimed through 2004 at a reduced rate for 

qualifying facilities that were placed in service prior to 2002 and for facilities that co-fire eligible 

biomass with coal. The proposal also would modify certain rules relating to leasing and 

coordination with other government subsidies.

(d) Provide tax credit for residential solar energy systems

The President’s budget proposal would allow individuals who purchase photovoltaic 

equipment or solar water heating equipment for use in their personal residence a nonrefundable 

credit equal to 15 percent of the cost of the equipment and its installation up to a maximum credit 

of $2,000 per residence for photovoltaic equipment and $2,000 per residence for solar water 

heating equipment. The credit would apply to solar water heating equipment placed in service 

after December 31, 2001, and before January 1, 2006. The credit would apply to photovoltaic 

systems placed in service after December 31, 2001, and before January 1, 2008.

(e) Modify treatment of nuclear decommissioning funds

The President’s budget proposal would repeal the cost-of-service requirement for 

deductible contributions to qualified nuclear decommissioning funds. Thus, taxpayers in States 
12

in which electric generation has been deregulated would be allowed a deduction for amounts 

contributed to a qualified nuclear decommissioning fund. In addition, the proposal would allow 

taxpayers to make contributions in excess of the maximum annual contribution amount (as 

determined by the IRS) up to an amount that equals the present value of the amount required to 

pay the plant’s pre-1984 decommissioning costs. Any amount transferred under the proposal 

that exceeds the amount previously deducted or excluded from gross income would be allowed 

as a deduction ratably over the remaining useful life of the nuclear power plant. The proposal 

also would permit deductible contributions to a qualified fund after the end of the nuclear power 

plant’s estimated useful life and would provide that nuclear decommissioning costs are 

deductible when paid. The proposal would be effective for taxable years beginning after 

December 31, 2001.
13

C. One-Year Extension of Provisions Expiring in 2001

The President’s budget proposal would extend for one year the following provisions 

expiring in 2001:

(1) The work opportunity tax credit, effective for qualified individuals who begin 

work for their employer before January 1, 2003.

(2) The welfare-to-work tax credit, effective for qualified individuals who begin work 

for their employer before January 1, 2003.

(3) The exclusion for employer-provided educational assistance, effective through 

December 31, 2002.

(4) The provision allowing the nonrefundable personal credits against both regular 

tax liability and alternative minimum tax liability, through 2002.

(5) 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, through 2002.

(6) The suspension of the 100 percent of net income limitation for percentage 

depletion, through 2002.

(7) The authority to issue up to $400 million of qualified zone academy bonds in 

calendar year 2002.
14

D. Disclosure of Return Information for Administration of Certain Veterans’ Programs

The President’s budget proposal would make permanent the currently temporary statutory

authority for the IRS to provide the Department of Veterans Affairs with access to IRS data for 

purposes of determining eligibility for means-tested veterans benefits.