**DESCRIPTION OF REVENUE PROVISIONS**

**TO BE CONSIDERED IN CONNECTION WITH**

**THE MARKUP OF**

**THE WORK INCENTIVES IMPROVEMENT ACT OF 1999**

Scheduled for Markup

by the

SENATE COMMITTEE ON FINANCE

on March 4, 1999

Prepared by the Staff

of the

JOINT COMMITTEE ON TAXATION

March 2, 1999

JCX-10-99

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**CONTENTS**

**INTRODUCTION**

**DESCRIPTION OF REVENUE PROVISIONS**

		1.	Modify Foreign Tax Credit Carryover Rules

		2.	Limit Use of Non-Accrual Experience Method of Accounting to 			Amounts To Be Received for the Performance of Qualified 			Professional Services

		3.	Extension of IRS user fees

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**INTRODUCTION**

	This document,(1)****prepared by the staff of the Joint Committee on Taxation, contains adescription of the revenue proposals to be considered by the Senate Committee on Finance inconnection with the markup of the Work Incentives Improvement Act of 1999, scheduled forMarch 4, 1999.

	This document contains a description of the following revenue proposals: to modify theforeign tax credit carryover rules, to limit use of non-accrual experience method of accounting toamounts to be received for the performance of qualified professional services, and to extend IRSuser fees.

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**DESCRIPTION OF REVENUE PROVISIONS**

**1.  Modify Foreign Tax Credit Carryover Rules**

**Present Law**

	U.S. persons may credit foreign taxes against U.S. tax on foreign-source income. Theamount of foreign tax credits that can be claimed in a year is subject to a limitation that preventstaxpayers from using foreign tax credits to offset U.S. tax on U.S.-source income. Separateforeign tax credit limitations are applied to specific categories of income.

	The amount of creditable taxes paid or accrued (or deemed paid) in any taxable yearwhich exceeds the foreign tax credit limitation is permitted to be carried back two years andforward five years. The amount carried over may be used as a credit in a carryover year to theextent the taxpayer otherwise has excess foreign tax credit limitation for such year. The separateforeign tax credit limitations apply for purposes of the carryover rules.

**Description of Proposal**

	The proposal would reduce the carryback period for excess foreign tax credits from twoyears to one year. The proposal also would extend the excess foreign tax credit carryforwardperiod from five years to seven years.

**Effective Date**

	The proposal would apply to foreign tax credits arising in taxable years beginning afterDecember 31, 2001.

**2.  Limit Use of Non-Accrual Experience Method of Accounting to Amounts to Be Receivedfor the Performance of Qualified Professional Services**

**Present Law**

	An accrual method taxpayer generally must recognize income when all events haveoccurred that fix the right to its receipt and its amount can be determined with reasonableaccuracy.  An accrual method taxpayer may deduct the amount of any receivable that waspreviously included in income if the receivable becomes worthless during the year.

	Accrual method taxpayers are not required to include in income amounts to be receivedfor 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 notcharging interest or a penalty for failure to timely pay the amount charged.

**Description of Proposal**

	The non-accrual experience method would apply only to amounts to be received for theperformance of qualified personal services.  Amounts to be received for the performance of allother services would be subject to the general rule regarding inclusion in income. Qualifiedpersonal services are personal services in the fields of health, law, engineering, architecture,accounting, actuarial science, performing arts or consulting.  As under present law, theavailability of the method would be conditioned on the taxpayer not charging interest or apenalty for failure to timely pay the amount.

**Effective Date**

	The proposal would be effective for taxable years ending after the date of enactment.  Any change required as a result of the proposal would be considered a change in the taxpayer'smethod of accounting, initiated by the taxpayer with the consent of the Secretary.  Any requiredsection 481(a) adjustment would be taken into account over a period not to exceed four years.

**3.  Extension of IRS User Fees**

**Present Law**

	The IRS provides written responses to questions of individuals, corporations, andorganizations relating to their tax status or the effects of particular transactions for tax purposes. The IRS generally charges a fee for requests for a letter ruling, determination letter, opinionletter, or other similar ruling or determination.  Public Law 104-117(2) extended the statutoryauthorization for these user fees(3) through September 30, 2003.

**Description of Proposal**

	The proposal would extend the statutory authorization for these user fees throughSeptember 30, 2006.

**Effective Date**

	The proposal would be effective on the date of enactment.

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**Footnotes**

1.   This document may be cited as follows: Joint Committee on Taxation, *Description ofRevenue Provisions to be Considered in Connection with the Markup of the Work IncentivesImprovement Act of 1999*(JCX-10-99), March 2, 1999.
2.   An Act to provide that members of the Armed Forces performing services for thepeacekeeping efforts in Bosnia and Herzegovina, Croatia, and Macedonia shall be entitled to taxbenefits in the same manner as if such services were performed in a combat zone, and for otherpurposes  (March 20, 1996).
3.   These user fees were originally enacted in section 10511 of the Revenue Act of 1987(Public Law 100-203, December 22, 1987).