Item

Present Law

House Bill

Senate Bill

income (or AGI, if greater) in
excess of the end of the
phaseout range, no credit is
allowed.

b. A qualifying child must
meet a relationship test, an age
test, an identification test, and a
residence test. To satisfy the
identification test, individuals
must include on their tax return
the name and age of each
qualifying child. For returns
filed with respect to tax year
1996, individuals must provide
a taxpayer identification number
(TIN) for all qualifying children
bom on or before November 30,
1996. For returns filed with
respect to tax year 1997 and all
subsequent years, individuals
must provide TINs for all
qualifying children, regardless
of their age. An individual’s
TIN is generally that
individual’s social security
number.

>

b. Individuals are not
eligible for the credit if they do
not include their taxpayer
identification number (and, if
married, their spouse’s taxpayer
identification number) on their
tax return. Solely for these,
purposes a taxpayer
identification number is defined
as a social security number. If
an individual obtains a social
security number solely because
that individual is an applicant
for, or a recipient of, Federally
funded benefits, the individual
is ineligible to claim the credit.

If an individual fails to
provide a correct taxpayer
identification number, such
omission will be treated as a
mathematical or clerical error.

Effective date. -- Generally
taxable years beginning after
December 31, 1995. For
individuals receiving the credit
on an advance basis as of June
26, 1996, effective for taxable
years beginning after December
31, 1996.

b. Same as the House bill.


Item

Present Law

House Bill

Senate Amendment

-7-

(described above); provided that
the amount withdrawn does not
exceed the qualified adoption
expenses paid or incurred by the
taxpayer during the taxable
year.

Effective date.--Taxable years
beginning after December 31,
1996. :


Item

Present Law

House Bill

Senate Bill

d. To claim the credit, an
individual must either have a
qualifying child or meet other
requirements. In order to claim
a credit without a qualifying
child, an individual must not be
a dependent and must be over
age 24 and under age 65. The
earned income amount and the
beginning of the phaseout range
are indexed for inflation;
because the end of the phaseout
range depends on these amounts
as well as the phaseout rate and
the credit rate, the end of the
phaseout range will also
increase if there is inflation.

-4-

d. No provision.

Effective date. -- Generally
taxable years beginning after
December 31, 1995. For
individuals receiving the credit
on an advance basis as of June
26, 1996, effective for taxable
years beginning after December
31, 1996.

d. In the case of individuals
with no qualifying children
there will be no adjustment for
inflation after 1996 to the
earned income amount or the
beginning of the phaseout range.

Effective date. -- Taxable years
beginning after December 31,
1996.


Item

Present Law

House Bill

Senate Bill

The Internal Revenue
Service may summarily assess
additional tax due as a result of
a mathematical or clerical error
without sending the taxpayer a
notice of deficiency and giving
the taxpayer an opportunity to
petition the Tax Court. Where
the IRS uses the summary
assessment procedure for
mathematical or clerical errors,
the taxpayer must be given an
explanation of the asserted error
and a period of 60 days to
request that the IRS abate its
assessment.

c. For taxable years
beginning after December 31,
1995, an individual is not
eligible for the credit if the
aggregate amount of
“disqualified income” of the
taxpayer for the taxable year
exceeds $2,350. This threshold
is not indexed. Disqualified
income is the sum of (1) interest
(taxable and tax-exempt), (2)
dividends, and (3) net rent and
royalty income (if greater than
zero).

If an individual who claims the
credit with respect to net
earnings from self-employment
fails to pay the proper amount of
self-employment tax on such net
earnings, the failure will be
treated as a mathematical or
clerical error for purposes of the
amount of credit allowed.

Effective date. -- Taxable years

beginning after December 31,
1995,

c. No provision.

3-

Effective date. -- Same as the
House bill.

c. Adds capital gain net
income (if greater than zero)
and net passive income (if
greater than zero) that is not
self-employment income to the
definition of disqualified
income. The threshold above
which an individual is not
eligible for the credit is reduced
from $2,350 to $2,200, and the
threshold is indexed for inflation
after 1996.


Item

Present Law

House Bill

Senate Amendment

received by the taxpayer under
any Federal, State, or local grant
program.

Income exclusion.--Provides an
unlimited exclusion from the
gross income of an employee for
qualified adoption expenses (as
defined above) paid by the
employer. Qualified adoption
expenses can be provided
through a cafeteria plan.
Military adoption assistance
benefits are also excluded from
income under the provision.

IRA withdrawals.-- Amounts
withdrawn from an individual
retirement arrangement for
qualified adoption expenses (as
defined above) are not
includible in gross income and
are not subject to the 10-percent
tax on early withdrawals to the
extent that the amount
withdrawn exceeds the sum of :
(1) the amount of excludable
employer-provided adoption
assistance (described above);
and (2) the amount allowable
under the adoption credit


COMPARISON OF REVENUE PROVISIONS OF H.R. 3734
(WELFARE REFORM RECONCILIATION ACT OF 1996)
AS PASSED BY THE HOUSE AND SENATE

Prepared for the Use of the House and Senate Conferees
By the Staff
of the

JOINT COMMITTEE ON TAXATION

July 25, 1996

ICX-39-96


Item

Present Law

House Bill

Senate Amendment

B. Credit, exclusion
and IRA
withdrawals for
qualified adoption
expenses (sec. 2813
of the Senate
amendment)

Present law provides no specific
Federal tax benefits to
encourage adoption.

No provision.

Credit.--Provides individual
taxpayers with a maximum
refundable credit of $5,000 per
child for qualified adoption
expenses. Qualified adoption
expenses are reasonable and
necessary adoption fees, court
costs, attorney fees, and other
expenses that are directly related
to the legal and finalized ~
adoption of a child by the
taxpayer and that are not
incurred in violation of State or
Federal law or in carrying out
any surrogate parenting
arrangement. The term qualified
adoption expenses does not
include any expenses in
connection with the adoption of
a child who is the child of the
taxpayer’s spouse.

The credit is phased out ratably
between $60,000 and $100,000
of the taxpayer’s adjusted gross
income (AGI). The credit is not
allowed for any expense that is
the basis of another credit or
deduction. It is also not allowed
for any expense to the extent
that funds for such expense are


Item

Present Law

House Bill

Senate Bill

COMPARISON OF
DIFFERING REVENUE
PROVISIONS

A. Earned income
credit provisions
(sec. 4451 of the
House bill and secs,
2451 and 2911-2913
of the Senate bill)

a. Certain eligible
low-income workers are entitled
to claim a refundable credit on
their income tax return. The
amount of the credit an eligible
individual may claim depends
upon whether the individual has
one, more than one, or no
qualifying children and is
determined by multiplying the
credit rate by the individual’s
earned income up to an earned
income amount. The maximum
amount of the credit is the
product of the credit rate and the
earned income amount. For
individuals with earned income
(or adjusted gross income
(AGD), if greater) in excess of
the beginning of the phaseout
range, the maximum credit
amount is reduced by the
phaseout rate multiplied by the
amount of earned income (or
AGI, if greater) in excess of the
beginning of the phaseout range.
For individuals with earned

a. No provision.

a. Modifies the definition of
AGI used for phasing out the
credit by disregarding the
following losses:

(1) net capital losses (if
greater than zero),

(2) net losses from trusts
and estates,

(3) net losses from
nonbusiness rents
and royalties, and

(4) net losses from
businesses.

and including the following
items:

(1) tax-exempt interest,
and

(2) nontaxable
distributions (that are
not rolled over) from
pensions, annuities,
and individual
retirement
arrangements.


INTRODUCTION

TLR. 3734 (“Welfare Reform Reconciliation Act of 1996”) was passed by the House of
Representatives on July 18, 1996. H.R. 3734 (“Personal Responsibility, Work Opportunity, and
Medicaid Restructuring Act of 1996”) was passed by the Senate on July 23, 1996.

This document," prepared by the Staff of the Joint Committee on Taxation, provides a
comparison of the revenue provisions of the House and Senate bills.

' This document may be cited as follows, Joint Committee on Taxation, Comparison of Revenue
Provisions of H.R. 3734 (Welfare Reform Reconciliation Act of 1996) as Passed by the House and
Senate (JCX-39-96), July 25, 1996.

@)


CONTENTS

A. Earned income credit provisions (sec. 4451 of the House bill and secs. 2451
and 2911-2913 of the Senate bill) 20.0000 00... eee
B. Credit, exclusion and IRA withdrawals for qualified adoption expenses
(sec. 2831 of the Senate bill)

@