-15-
2. Changes in Treatment of Assets under AFDC
Present Law

Federal law directs the State welfare agency to
determine ineligible for AFDC any family whose counted
resources exceed $1,000, or a lower amount set by the State.
The following resources are exempt from the resource limit:
a home in which the family lives, an automobile (so long as
the individual's ownership interest does not exceed the
amount specified in regulations, which is currently $1,500,
or such lower amount as the State may determine), burial
plots, funeral agreements, and real property (for a limited
time period) of which the family is making a good faith
effort to dispose.

Federal regulations for AFDC define “earned income" from
self-employment as the total profit from business enterprise,
farming, etc. Under the rules, total profit is calculated by
comparing gross receipts with certain business expenses,
those directly related to producing the goods or services and
without which the goods or services could not be produced.

States are required by Federal law to disregard certain
earned income when determining the amount of benefits to
which a recipient family is entitled. States must disregard
all of the earned income of a dependent child receiving AFDC
who is a full-time student or a part-time student who is not
a full-time employee and is attending a school, college,
university, or vocational training course. States may, for a
period of 6 months, disregard all or part of the earned
income of a dependent child who is a full-time student and
who is applying for AFDC, if and only if the earnings of the
child are excluded in determining whether the family's total
monthly income is below the eligibility ceiling, 185 percent
of the AFDC need standard. States also have the option of
disregarding ail or any part of income derived from Job
Training Partnership Act (JTPA) programs by a dependent child
applying for or receiving AFDC (there is a 6-month limit on
the disregard of earned income, and no limit on unearned
income). Further, in determining whether the family meets
the gross income test (185 percent of need), States may
disregard earnings of a child who is a full-time student, but
only for 6 months.

Description of Provision

Would permit States under certain conditions to exclude
from the resource limit applicable to recipient families,
assets valued up to $10,000 (States could choose any amount
between $1,000 and $10,000). To exercise this option, the
State would be required in its AFDC plan to provide that:
{1) the State agency will determine that these disregarded
resources are being retained for improving the education,



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D. Luxury Excise Tax and Diesel Fuel Excise Tax on Motorboats

1. Repeal of Luxury Excise Tax on Boats, Aircraft,
Jewelry, and Furs; Index Luxury Excise Tax
on Vehicles

Present Law

Present law imposes 10-percent excise taxes on the
portion of the retail price of the following items that
exceeds the thresholds specified: automobiles above $30,000;
boats above $100,000; aircraft above $250,000: jewelry above
$10,000; and furs above $10,000.

The tax generally applies only to the first retail sale
after manufacture, production or importation of items subject
to the tax. It does not apply to subsequent sales of these
items.

The tax applies to sales before January 1, 2000.

Description of Proposal

The proposal would repeal the excise taxes imposed on
boats, airplanes, jewelry, and furs.

The proposal also would modify the tax on automobiles to
provide that the $30,000 threshold is indexed for inflation
occurring after 1990.

The proposal to repeal the luxury excise tax on boats,
furs, airplanes, and jewelry, and to index the threshold of
the tax with respect to automobiles, was included in
H.R. 4210 as passed by the House and Senate.

Effective Date

The repeal of the luxury tax imposed on boats,
airplanes, jewelry, and furs would be effective for sales on
or after January 1, 1992. The indexation of the threshold
applicable to automobiles would be effective for sales on or
after July 1, 1992.

2. Impose Excise Tax on Diesel Fuel Used in Noncommercial
Motorboats

Present Law

Federal excise taxes generally are imposed on gasoline
and special motor fuels used in highway transportation and by
certain off-highway recreational trail vehicles and by
motorboats (14 cents per gallon). A Federal excise tax also



-32-

Cc. Real Estate Proposals

1. Modification of Passive Loss Rules for Certain Real
Estate Persons

Present Law

The passive loss rules limit deductions and credits from
passive trade or business activities. Deductions
attributable to passive activities, to the extent they exceed
income from passive activities, generally may not be deducted
against other income, such as wages, portfolio income, or
business income that is not derived from a passive activity.
Credits from passive activities may not reduce the taxpayer's
tax liability, to the extent such credits exceed regular tax
liability from passive activities. Deductions and credits
that are suspended under these rules are carried forward and
treated as deductions and credits from passive activities in
the next year. The suspended losses from a passive activity
are allowed in full when a taxpayer disposes of his entire
interest in the passive activity to an unrelated person.

Passive activities are defined to include trade or
business activities in which the taxpayer does not materially
participate. To materially participate in an activity, a
taxpayer must be involved in the operations of the activity
on a regular, continuous, and substantial basis. Except as
provided in regulations, a taxpayer is treated as not
materially participating in an activity held through a
limited partnership interest.

Rental activities also are included in the definition of
passive activities (regardless of the level of the taxpayer's
participation). In general, rental activities are treated as
separate from other business activities. A special rule
permits the deduction of up to $25,000 of losses from certain
rental real estate activities (even though they are
considered passive) if the taxpayer actively participates in
them. This $25,000 amount is allowed for taxpayers with
adjusted gross incomes of $100,000 or less, and is phased out
for taxpayers with adjusted gross incomes between $100,000
and $150,000. Active participation is a lesser standard of
involvement than material participation. A taxpayer is
treated as actively participating if, for example, he
participates, in a significant and bona fide sense, in the
making of management decisions or arranging for others to
provide services (such as repairs). The active participation
standard is not satisfied, however, if the taxpayer's
interest is less than 10 percent (by value) of all interests
in the activity. A taxpayer generally is deemed not to
satisfy the active participation standard with respect to
property he holds through a limited partnership interest.



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C. Revenue-Increase Provisions Previously
Passed by the House

1. Treatment of Pre-Contribution Gain on Certain Partnership
Redemptions

Present Law

Generally, if a partner contributes appreciated property
to a partnership, no gain is recognized to the contributing
partner at the time of the contribution, but gain recognized
subsequently by the partnership with respect to that property
must be allocated to the contributing partner to the extent
of the pre-contribution appreciation. In addition, if the
property is subsequently distributed to another partner
within 5 years of the contribution, the contributing partner
generally must recognize gain as if the property had been
sold for its value at the time of the distribution. Present
law generally does not require a partner who contributes
appreciated property to a partnership to recognize
pre-contribution gain.upon a subsequent distribution of other
property to that partner even if the value of that other
property exceeds the partner's basis in his partnership
interest (unless the transaction is otherwise treated as a
disguised sale).

Description of Proposal

The proposal requires a partner who contributes
appreciated property to a partnership to include
pre-contribution gain in income to the extent that the value
of other property distributed by the partnership exceeds his
adjusted basis in his partnership interest. The proposal
applies whether or not the contributing partner's interest in
the partnership is reduced in connection with the
distribution. The proposal generally applies only if the
distribution is made within 5 years after the contribution of
the appreciated property. Appropriate basis adjustments are
to be made to take account of gain recognized by the
distributee partner under the proposal.

Gain recognition generally is not required to the extent
the partnership distributes property which had been
contributed by the distributee partner. If the property
distributed consists of an interest in an entity, however,
gain recognition is required to the extent that the value of
the interest in the entity is attributable to property
contributed to the entity after the interest in it was
contributed to the partnership. Similarly, if contributed
property is distributed indirectly to a partner other than
its contributor, the contributing partner is subject to tax
on the pre-contribution gain as if the property had been
distributed directly rather than indirectly.



-41-

The proposal was included in H.R. 4210 as Passed by the
House and the Senate.

Effective Date

The proposal would be effective for club dues paid on or
after the date of enactment.



-9-

B. Permanent Extension of Certain Expiring Provisions
1. Tax Credit for Low-Income Rental Housing
Present Law

A tax credit is allowed in annual installments over 10
years for qualifying newly constructed or substantially
rehabilitated low-income rental housing. Generally, a
building for which the credit is claimed must be rented to
qualified low-income tenants at restricted rents for 15 years
after the building is placed in service. The maximum rent
that may be charged to low-income tenants depends on the
number of bedrooms in the unit. For buildings placed in
service before 1990, the maximum rent was based on family
size.

The tax credit is scheduled to expire after June 30,
1992.

Description of Proposal

The proposal would make permanent the low-income housing
tax credit.

The proposal also would make a provision of the Omnibus
Budget Reconciliation Act of 1989 available on a prospective
basis to taxpayers who placed low-income housing credit
buildings in service before the effective date of that Act.
That provision would allow taxpayers who placed buildings in
service before 1990 to elect irrevocably to use either
apartment size or family size as the basis for determining
incomes under the credit's gross rent limitation.

The proposal is the same as was included in H.R. 4210,
as reported by the committee and passed by the House. The
conference agreement on that bill made several additional
modifications to the program requirements.

Effective Date

Generally, the proposal would be effective for periods
after June 30, 1992.

2. Targeted Jobs Tax Credit
Present Law
Tax credit
The targeted jobs tax credit is available on an elective

basis for hiring individuals from nine targeted groups.
These targeted groups consist of individuals who are either



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IV.--SUBCOMMITTEE LEGISLATION
A. Human Resources Subcommittee

1. Effect of Failure to Carry Out State Plan (Suter v.
Artist M.)

Present Law

Many of the principal Federal social welfare programs
are established under the "State plan" titles of the Social
Security Act of 1935, as amended. These programs include Aid
to Families with Dependent Children (Title IV~A), Child
Welfare Services (Title IV-B), Child Support and
Establishment of Paternity (Title IV-D), Adoption Assistance
and Child Welfare (Title IV-E), and Medicaid (Title XIX).
Under the State plan titles of the Act, as a precondition of
funding each participating State is required to develop a
written "State plan" that meets certain statutory
requirements in order to be approved by the Secretary of the
Department of Health and Human Services (DHHS).

On March 25, 1992, the Supreme Court decided in Suter v.
Artist M., ~--- U.S. ---, 112 S. Ct. 1360 (1992), that
beneficiaries of the Adoption Assistance and Child Welfare
Act of 1980 (Title IV-E of the Social Security Act) do not
have a private right under the Act to enforce its provisions.
Moreover, the Court also decided that the beneficiaries of
the Act could not enforce its provisions through a Federal
civil rights action under 42 U.S.C. 1983 to remedy violations
of the Federal statute.

Description of Provision

Would amend title XI of the Social Security Act to
provide that the failure of any State to which Federal funds
are paid under a title of the Social Security Act that
includes plan requirements to: (1) have a plan that meets
such requirements, or (2) administer such a plan in
accordance with such requirements, whether before or after
the date of enactment, shall constitute a violation of rights
enforceable in any civil action for deprivation of rights
under color of State law.

Social Security Act program beneficiaries, parents, and
advocacy groups have brought hundreds of successful suits
alleging failure of the State and/or locality to comply with
State plan requirements of the Social Security Act. These
cases typically address legal issues such as a State's
failure to use mandated income and resource eligibility rules
of the program, the failure to provide a fair hearing when
denying benefits, the failure to decide an application ina
timely manner, or the failure to make reasonable efforts to



-51-

agreement to extend the period by providing notice to the
IRS.

During an audit, the IRS may informally request that the
taxpayer provide additional information necessary to arrive
at a fair and accurate audit adjustment, if any adjustment is
warranted. Not all taxpayers cooperate by providing the
requested information on a timely basis. In some cases the
IRS seeks information by issuing an administrative summons.
Such a summons will not be judicially enforced unless the
Government (as a practical matter, the Department of Justice)
seeks and obtains an order for enforcement in Federal court.
In addition, a taxpayer may petition the court to quash an
administrative summons where this is permitted by statute.

In certain cases the running of the assessment period is
suspended during the period when the parties are in court to
obtain or avoid judicial enforcement of an administrative
summons. Such a suspension is provided in the case of
litigation over a third-party summons (sec. 7609(e)) or
litigation over a summons regarding the examination of a
related party transaction. Such a suspension can also occur
with respect to a corporate tax return if a summons is issued
at least 60 days before the day on which the assessment
period (as extended) is scheduled to expire. In this case,
suspension is only permitted if the summons clearly states
that it is a "designated summons" for this purpose. Only one
summons may be treated as a designated summons for purposes
of any one tax return. The limitations period is suspended
during the judicial enforcement period of the designated
summons and of any other summons relating to the same tax
return that is issued within 30 days after the designated
summons is issued.

Under current internal procedures of the IRS, no
designated summons is issued unless first reviewed by the
Office of Chief Counsel to the IRS, including review by an
IRS Deputy Regional Counsel for the Region in which the
examination of the corporation's return is being conducted.

Description of Proposal

The proposal would require that issuance of any
designated summons with respect to a corporation's tax return
must be preceded by review of such issuance by the Regional
Counsel, Office of Chief Counsel to the IRS, for the Region

5  Betitions to quash are permitted, for example, in
connection with the examination of certain related party
transactions under section 6038A(e)(4), and in the case of
certain third-party summonses under section 7609(b)(2).



~49-

Description of Proposal

The proposal would increase the exemption amounts to
$1,700 for personal property and $1,200 for books and tools.
Both these amounts are indexed for inflation commencing with
calendar year 1994.

Effective Date

The proposal would be effective on the date of
enactment.

b. Offers-in-compromise
Present Law

The IRS has the authority to settle a tax debt pursuant
to an offer-in-compromise. IRS regulations provide that such
offers can be accepted if: the taxpayer is unable to pay the
full amount of the tax liability and it is doubtful that the
tax, interest, and penalties can be collected or there is
doubt as to the validity of the actual tax liability.

Amounts over $500 can only be accepted if the reasons for the
acceptance are documented in detail and supported by an
opinion of the IRS Chief Counsel.

Description of Proposal

The proposal would allow acceptance of an
offer-in-compromise where the compromise would be in the best
interest of the Government. The proposal also would increase
from $500 to $50,000 the amount requiring a written opinion
from the Office of Chief Counsel. Compromises below the
$50,000 threshold would be subject to continuing quality
review by the IRS.

Effective Date

The proposal would be effective on the date of
enactment.

c. Notification of examination
Present Law

In general, the IRS notifies taxpayers in writing prior
to commencing an examination and encloses a copy of
Publication 1, "Your Rights as a Taxpayer," with the notice.
Sometimes, however, the IRS uses the telephone to schedule an
examination.



-55-

Description of Proposal

The proposal would require the IRS, if requested in
writing by a person considered by the IRS to be a responsible
person, to disclose in writing to that person the name of any
other person the IRS has determined to be a responsible
person with respect to the tax liability. The IRS would be
required to disclose in writing whether it has attempted to
collect this penalty from other responsible persons, the
general nature of those collection activities, and the amount
(if any) collected. Failure by the IRS to follow this
provision would not absolve any individual for any liability
for this penalty.

Effective Date

The proposal would be effective on the date of
enactment.

8. Awarding of Costs And Certain Fees
a. IRS employees personally liable in-certain cases
Present Law

IRS employees are not personally liable for the payment
of any litigation costs under section 7430.

Description of Proposal

The proposal would give discretion to the court in tax
cases to assess all or a portion of any award under section
7430 against an IRS employee, if the court determines that
the proceeding resulted from any arbitrary, capricious, or
malicious act of the employee.

The proposal would also permit the Government to provide
legal representation to an IRS employee accused of arbitrary,
capricious, or malicious action. If the court ultimately
determines that the IRS employee acted arbitrarily,
capriciously, or maliciously, and the court assesses all or a
portion of an award under section 7430 against the IRS
employee, the IRS employee would be required to reimburse the
Government for the costs of the legal representation (in
addition to paying the amount assessed by the court). (This
paragraph of the proposal was added to the provision
contained in the conference report on H.R. 4210.)

Effective Date

The proposal would apply to proceedings commenced after
the date of enactment.



-59-

Description of Proposal

The proposal would apply the failure to file penalty to
substitute returns in the same manner as the penalty applies
to delinquent filers.

Effective Date

The proposal would apply in the case of any return the
due date for which (determined without regard to extensions)
is after the date of enactment.

d. Unauthorized enticement of information disclosure
Present Law

There is no statutory disincentive for enticing a tax
professional to disclose information about ciients in
exchange for forgiving the taxes of the professional.

Description of Proposal

The proposal would provide that, if a Government
employee defers or offers to defer (or forgives or offers to
forgive) the determination or collection of any tax due toa
tax professional in exchange for information concerning the
professional's clients, the information so obtained may not
be utilized in determining or adjusting the tax liability of
the client. (This proposal is different from the conference
report on H.R. 4210.)

Effective Date

The proposal would apply to actions taken after the date
of enactment.

10. Form Modifications

a. Explanation of certain provisions
Present Law
Section 6159 authorizes the IRS to enter into written

installment agreements with any taxpayer. Section 7122
authorizes the IRS to accept offers in compromise from
taxpayers in certain situations. Section 6161 authorizes the
IRS to extend the time for payment of tax.

Description of Proposal

The proposal would require the IRS to take such actions
as may be appropriate (including improved publicity) to
ensure that taxpayers are aware of the availability of
installment agreements, offers in compromise, and the



-~a7-
Effective Date

The proposal would be effective on the date of
enactment.

b. Joint return may be made after separate returns without
full payment of tax

Present Law

Taxpayers who file separate returns and subsequently
determine that their tax liability would have been less if
they had filed a joint return are precluded by statute from
reducing their tax liability by filing jointly if they are
unable to pay the entire amount of the joint return liability
before the expiration of the three-year period for making the
election to file jointly.

Description of Proposal

The proposal would repeal the requirement of full
payment of tax liability as a precondition to switching from
married filing separately status to married filing jointly
status.

Effective Date

The proposal would apply to taxable years beginning
after the date of the enactment.

5. Collection Activities
a. Modifications to lien and levy provisic..:
i. Withdrawal of public notice of lien
Present Law

The IRS must file a notice of lien in the public record,
in order to protect the priority of a tax lien. A notice of
tax lien provides public notice that a taxpayer owes the
Government money. The IRS has discretion in filing such a
notice, but may withdraw a filed notice only if the notice
(and the underlying lien) was erroneously filed or if the
underlying lien has been paid, bonded, or become
unenforceable.

Description of Proposal

The proposal would allow the IRS to withdraw a public
notice of tax lien prior to payment in full by the indebted
taxpayer if the Secretary determines that (1) the filing of
the notice was premature or otherwise not in accordance with
the administration procedures of the IRS, (2) the taxpayer



-19-

Study of corporate sponsorship payments

The Treasury Department would be directed to conduct a
study on the tax treatment of corporate sponsorship payments
received by charitable and other tax-exempt organizations in
connection with athletic and other events, including the
ramifications of IRS proposed examination guidelines
contained in Announcement 92-15, 1992-5 I.R.B. 51. Within
one year after the date of enactment, the Treasury Department
would be fequired to report the results of this study to the
Congress.

Advance valuation procedure

The Treasury Department would be directed to report to
Congress not later than one year after enactment on the
development of a procedure under which taxpayers could elect
to seek an agreement with the IRS as to the value of tangible
personal property prior to the donation of such property toa
qualifying charitable organization, including the setting of
possible threshold amounts for claimed value (and the payment
of fees by taxpayers), possible limitations on applying the
procedure only to items with significant artistic or cultural
value, and recommendations for legislative action needed to
implement the proposed procedure.

The three proposals above were included in H.R. 4210 as
passed by the House and Senate (except that the provision in
H.R. 4210 applied to charitable contributions made during the
period January 1, 1992, through June 30, 1993, and the
Treasury Department report on an advance valuation procedure
was required to be submitted to Congress by December 31,
1992).

Effective Date
The proposal would be effective for contributions made

during the period January 1, 1992, through December 31, 1993.
Not later than one year after date of enactment, the

1 The committee would express its concern about the
application of the proposed examination guidelines contained
in Announcement 92-15 to royalties and other payments that
may be received by the U.S. Olympic Committee and the Atlanta
Committee for the Olympic Games, Inc., in connection with the
1996 Games of the XXVI Olympiad. The committee would express
its expectation that, under general UBIT rules (see Rev. Rul.
81-178, 1981-2 C.B. 135), royalty income derived from
licensing Olympic trademarks, emblems, and designations, as
well as all income from broadcasting, filming, and
videotaping the Olympics, will be treated as exempt from the
UBIT.



-37-

is imposed on diesel fuel (20 cents per gallon) used in
highway transportation.

The revenues from these taxes, minus 2.5 cents per
gallon, are deposited in the Highway Trust Fund, the National
Recreational Trails Trust Fund, or the Aquatic Resources
Trust Fund through September 30, 1999. Revenues from the
remaining 2.5 cents per gallon are retained in the General
Fund through September 30, 1995, after which time the
2.5-cents-per-gallon portion of the taxes is scheduled to
expire.

An additional 0.1-cent-per-gallon tax applies to these
fuels to finance the Leaking Underground Storage Trust Fund,
generally through December 31, 1995.

Description of Proposal

The proposal would extend the current
20.1-cents-per-gallon diesel fuels excise taxes to diesel
fuel used by recreational motorboats. Fuel used by
motorboats for commercial fishing, transportation for
compensation or hire, or for business use other than
predominantly for entertainment, amusement, or recreation,
would remain exempt.

The revenues from the entire 20.1-cents-per-gallon tax
on diesel fuel used by motorboats would be retained in the
General Fund.

This proposal was included in H.R. 4210 as passed by the
House and the Senate.

Effective Date

The proposal would be effective after September 30,
1992.



-68-

of 25 percent of compensation or $30,000. ‘There is no
provision under present law that permits contributions to
exceed these annual limits in the case of make-up
contributions with respect to a reemployed member of the
uniformed services.

Description of Proposal

The proposal would amend the Internal Revenue Code to
provide special rules in the case of make-up contributions
with respect to a reemployed member of the uniformed
services.

Under the proposal, if an individual is entitled to
credit under an employer's qualified defined contribution
retirement plan or eligible deferred compensation plan (sec.
457) for service as a member of the uniformed services, any
make-up contribution with respect to such service would be
exempt from the qualified plan contribution limits to the
extent such contributions could have been made if the member
had remained continuously employed. For purposes of
determining this amount, an individual's compensation would
be the compensation the individual would have received if the
individual was paid at the rate of compensation paid
immediately before the period of uniformed service. A
special rule would apply in the case of make-up contributions
of salary reduction and employer matching amounts.

Make-up contributions would not be taken into account
for nondiscrimination and certain other qualified plan
requirements.

No earnings would be credited to an employee with
respect to any contribution prior to such contribution
actually being made. In addition, any profit-sharing or
similar contribution, or any forfeiture, for any year during
the period of uniformed service would not be allocated to the
reemployed individual. A plan would also be permitted to
suspend repayment of a plan loan for the period of uniformed
service without adverse consequences to the individual.

Effective Date
The proposal would apply to reemployment initiated under

chapter 43 of title 38, United States Code, on or after
August 1, 1990.



INTRODUCTION

This document ,+ prepared by the staff of the Joint Committee
on Taxation, provides a description of Chairman Rostenkowski's
mark of a revenue proposal relating to enterprise zones,
extension of certain expiring tax provisions, tax simplification,
tax treatment of intangible assets, real estate provisions, :
luxury excise tax, Taxpayer Bill of Rights, technical
corrections, certain Subcommittee provisions, and certain
revenue-raising provisions. The proposal is scheduled for markup
consideration by the House Committee on Ways and Means on
June 24, 1992.

The description of the proposal indicates whether the
proposal was previously included in H.R. 4210 as passed by the
House or by the House and the Senate. The description of the
technical corrections provisions indicates how the Chairman's
proposal differs from H.R. 1555 as previously passed by the
House.

1 this document may be cited as follows: Joint Committee on
Taxation, Chairman's Mark of Revenue-Related Provisions
({Enterprize Zones, Extension of Certain Expiring Tax Provisions,
Tax Simplification, Intangible Assets, Real Estate, Luxury Excise
Tax, Taxpayer Bill of Rights, Technical Corrections, and Certain
Revenue-Raising Provisions) and Subcommittee Proposals
(JCX-24-92), June 23, 1992.

(i)


-71-

interpretations to the term. In Suter v. Artist M., the
Supreme Court concluded that under the Adoption Assistance
Act no statutory guidance is found as to how “reasonable
efforts" are to be measured, and conciuded that the
“reasonable effort" language does not unambiguously confer an
enforceable right upon the Act's beneficiaries.

The purpose of this provision is to assure that
individuals who have been injured by a state's failure to
comply with the state plan requirements are able to seek
redress in the federal courts to the extent they were able to
prior to the decision in Suter v. Artist M. The provision
does not alter the rules of statutory construction that the
courts used prior to Suter v. Artist M. The provision does
not alter the finding in Suter v. Artist M., that the
"reasonable efforts" provision, without further direction, is
too vague to be enforceable in such an action. It only
alters that portion of Suter suggesting that failure of a
state to comply with a state plan provision is not litigable
as a violation of federal statutory rights.



-70-

preserve or reunify a family. Much of this litigation has
resulted in comprehensive reforms of Federal~State programs,
and increased compliance with the mandates of Federal
statutes. :

Suter v. Artist M. could result in the dismissal of many
suits brought to enforce the State plan titles of the Social
Security Act pending on or commenced after the date of the
Court's decision in the case. Lower courts have already
relied on the Suter v. Artist M. decision to dismiss lawsuits
brought to enforce the program requirements of the Aid to
Families with Dependent Children program (Title IV-A of the
Social Security Act) and the Child Support Enforcement
program (Title IV-D of the Social Security Act). See, Mason
v. Bradley, 1992 WL 80124 (N.D. I1ll., Apr. 20, 1992)(no
private right of action exists under the Aid to Families with
Dependent Children program).

As a result of the Court's decision, the only
enforcement mechanism that exists for a State's noncompliance
with State plan requirements under the Act is the authority
of the Secretary of DHHS to reduce or eliminate payments to a
State based upon a finding that the State's plan no longer
complies with the statutory. requirements or that there is a
substantial failure in the administration of the State plan.
Enforcement actions by DHHS for a State's noncompliance are
rare as Federal officials are reluctant to reduce or
eliminate payments for a variety of reasons. Furthermore,
considerable resources are required to monitor compliance on
a State-by-State basis.

Correspondingly, there is no procedure, after the Suter
v. Artist M. decision, by which program beneficiaries can
trigger a DHHS investigation or compliance proceeding for a
State's failure to have a plan that meets the State plan
requirements or to administer such a plan in accordance with
such requirements.

This amendment is therefore intended to restore to an
aggrieved party the right to enforce, as it existed prior to
the Suter v. Artist M. decision, the federal mandates of the
State plan titles of the Social Security Act. This amendment
is not intended to identify, create, or expand enforceable
rights under the state plan titles of the Social Security
Act. Nor is this amendment intended to define, clarify, or
establish standards for determining whether states have made
“reasonable efforts" to prevent the need for foster care
placement or to reunify children with their families after
placement as required by the Adoption Assistance and Child
Welfare Act (Title IV-E of the Social Security Act). Under
the Adoption Assistance Act, Courts must make a judicial
determination that this requirement has been met. Although
“reasonable effarts" is not defined either in the statute or
the accompanying regulations, states have applied varying



n
n
H

Indian

°

-73-

coordination of rules among the AFDC, Food Stamp and
Medicaid programs;

Authorize a three-year demonstration project in one
State that would provide community-based services for
young adult former foster children ages 21 to 25;

Delay the effective date for the requirement under
the Family Support Act that the outlaying areas
implement an AFDC-unemployed parent program to
October 1, 1994;

Direct the Secretary of HHS to develop an appropriate
methodology for determining what proportion of
eligible children are using Transitional Child Care
Assistance and report to Congress on its findings;
require the States to better disseminate information
on the Transitional Child Care program and establish
automatic eligibility procedures where appropriate
for families;

Require the Secretary to (1) review the State's plans
for new dollar investments to improve AFDC program
administration and (2) take the State's plan into
account as the Secretary considers appropriate;

Eliminate the unintended two-month Supplemental
Security Income (SSI) benefit increase following a
Cost of Living Adjustment (COLA) by using the current
month's benefit amount as the basis for presuming
value of in-kind support and maintenance, and other
technical changes;

Prevent adverse effects on SSI eligibility or benefit
amounts when spouses or parents of SSI~eligible
persons are absent from their households because of
military service assignments;

Apply SSI definition of disability for children to
all individuals under age 18 years old;

Trust Income

Exclude income up to $2,000 per year that is derived
from interests of individual Indians in trust or in
restricted lands in determining eligibility and
benefit amounts for the SSI and AFDC programs; and



-30-

Election to apply bill to property acquired during certain
open taxable years

A taxpayer would be allowed to elect to apply the
proposal to all property acquired by the taxpayer during an
"open taxable year."* In the case of any section 197
intangible that was acquired by an electing taxpayer on or
before the date of enactment of the proposal, the adjusted
basis of the intangible would be amortized ratably over a
19-year period that begins with the month that intangible was
acquired.

Interest would be payable by the taxpayer with respect
to any underpayment of tax that is attributable to the
election. Interest would not be payable by the Internal
Revenue Service with respect to any overpayment of tax that
is attributable to the election. The election would be
required to be made before January 1, 1993, and any
additional tax and interest that is due by reason of the
election would be required to be paid before January 1, 1993.

A special rule would apply to property that is acquired
by certain electing taxpayers in certain taxable years for
which the statute of limitations has expired as of July 25,
1991. If (1) an “open taxable year" election applies to a
taxpayer, (2) the taxpayer and the Internal Revenue Service
have agreed on the treatment of an acquired intangible for
which the “open taxable year" election does not apply, and
(3) as of February 14, 1992, there was a dispute between the
taxpayer and the Internal Revenue Service that arose because
the Internal Revenue Service took a position with respect to
an open taxable year that was contrary to that specified in
the agreement with respect to the treatment of the acquired
intangible, then the taxpayer would be allowed to amortize
such intangible in accordance with the agreement between the
taxpayer and the Internal Revenue Service.

4 An open taxable year would be defined as any taxable
year for which either (1) the statute of limitations on the
assessment of tax has not expired as of July 25, 1991, or (2)
a refund claim or suit is pending as of July 25, 1991, but
only if the refund claim or suit involves the issue of the
proper Federal income tax treatment of intangibles, acquired
in such year, that are defined as section 197 intangibles
under the proposal. An open taxable year, however, would not
include any taxable year that occurs before a taxable year
that is not an open taxable year.



-16-

training or employability (including self-employment) of a
family member or for the purchase of a home for the family;
{2) the value of any disregarded resources will not be taken
into account in determining eligibility under the food stamp
program; and (3) the State agency will not disregard any
resource owned by a family member within the preceding 12
months if the resource was disposed of at less than fair
market value for the purpose of establishing eligibility for
AFDC.

Would provide that recipient status for this resource
treatment will be deemed for families that received AFDC in
at least one of the previous 4 months. In addition,
recipient status for resource treatment would be deemed for
12 months for families that leave AFDC due to earnings.
These deeming provisions would permit former AFDC families
who lost employment or suffered other income loss to regain
AFDC eligibility without having to spend savings down to
$1,000 {or lower) as new applicants.

Would require the Secretary to report to the Congress on
the need to update the asset limit on vehicles and the extent
to which an updated limit would increase the employability of
AFDC recipients. In addition, the Secretary could, by
regulation, issue new regulations relating to the asset limit
on vehicles. In promulgating these regulations, the
Secretary should to the maximum extent possible coordinate
those rules with other Federal means-tested programs.

As under H.R. 3450, would require States to exempt from
the AFDC resource limitation the first $10,000 of net worth
(assets reduced by liabilities) of microenterprises owned, in
whole or in part, by an AFDC child or the child's caretaker
relative and stipulates that only the net profit of these
enterprises shall be treated as earned income of the AFDC
family.

Would exempt any earnings of a child who is a student
from the resource test and from consideration in the gross
income test (185 percent of need). Would also mandate that
all States disregard the earnings of an applicant child for
purposes of eligibility determination. Would eliminate the
6-month time limitations mentioned above. Would also clarify
that the earnings disregards apply to any student, including
teen parents under the age of 20.



-22-

The proposal was included in H.R. 4210 as passed by the
House and Senate.

Effective Date

The proposal would be effective beginning October 1,
1992,

7. Deduction for Health Insurance Costs of Self-Employed
Individuals

Present Law

Present law provides a deduction for 25 percent of the
amount paid for health insurance for a self-employed
individual and the individual's spouse and dependents. The
25-percent deduction is also available to more than 2-percent
shareholders of S corporations.

The 25-percent deduction expires for taxable years
beginning after June 30, 1992.

Description of Proposal

The proposal would extend the 25-percent deduction for
health insurance expenses of self-employed individuals for 6
months, through December 31, 1992.

A similar proposal was included in H.R. 4210 as passed
by the House and Senate, except that in H.R. 4210 the
deduction was extended for 12 months.

Effective Date

The proposal would be effective for taxable years ending
after June 30, 1992.

8. Allocation and Apportionment of Research Expenses
Present Law

U.S. persons are taxable on their worldwide income,
including their foreign income. Foreign source taxable
income equals foreign source gross income less the expenses,
losses and other deductions properly apportioned or allocated
to that income. The Internal Revenue Code generally
articulates only the broad principles of how expenses reduce
U.S. and foreign source gross income, leaving the Treasury
Department to provide detailed rules for the task of
allocating and apportioning expenses.

Treasury regulations issued in 1977 described methods
for allocating expenses between U.S. and foreign source
income, including rules for the allocation of research and



-18-

$5,250 of educational assistance with respect to an
individual during a calendar year.

Description of Proposal

The exclusion for employer-provided educational
assistance would be extended for 18 months, through
December 31, 1993.

A similar proposal was included in H.R. 4210 as passed
by the House and Senate, except that in H.R. 4210 the
exclusion was extended for 12 months rather than 18 months.

Effective Date

The proposal would be effective for taxable years ending
after June 30, 1992.

3. Contributions of Appreciated Property
Present Law

In computing taxable income, a taxpayer who itemizes
deductions generally is allowed to deduct the fair-market
value of property contributed to a charitable organization.
However, in the case of a charitable contribution of
inventory or other ordinary-income property, tangible
personal property the use of which is not related to the
donee's exempt purpose, short-term capital gain property, or
certain gifts to private foundations, the amount of the
deduction generally is limited to the taxpayer's adjusted
basis in the property.

For purposes of computing alternative minimum taxable
income (AMTI), the deduction for charitable contributions of
capital gain property (real, personal, or intangible) is
disallowed to the extent that the fair-market value of the
property exceeds its adjusted basis (sec. 57(a)(6)).

However, in the case of a contribution made in a taxable year
beginning in 1991 or made before July 1, 1992, in a taxable
year beginning in 1992, this rule does not apply to
contributions of tangible personal property.

Description of Proposal

AMT relief for donated appreciated property

The proposal would provide that all charitable
contributions of appreciated property (real, personal, or
intangible property) made during the period January 1, 1992,
through December 31, 1993, would not be treated as a tax
preference item for alternative minimum tax (AMT) purposes.



-31-

Treatment of certain payments to retired or deceased partners

The portion of the proposal relating to the treatment of
certain payments to retired or deceased partners generally
would apply to partners retiring or dying after February 14,
1992.

Anti-churning rules

Special rules would be provided to prevent taxpayers
from converting existing goodwill, going concern value, or
any other section 197 intangible for which a depreciation
deduction would not have been allowable under present law
into amortizable property to which the proposal applies.
These "anti-churning" rules would not apply to any section
197 intangible that is acquired from a person with less than
a 50-percent relationship to the acquirer if: (1) the seller
recognizes gain on the transaction with respect to such
intangible; and (2) the seller agrees, notwithstanding any
other provision of the Code, to pay a tax on such gain equal
to the highest rate of tax imposed by section 1 or 11 of the
Code, whichever is applicable.



-13-

C. Jobs Training Program Modifications and Welfare Reform

1. Enhanced Federal match and carryover funds for the JOBS
program

Present Law

Federal matching for expenditures under the JOBS program
is available to States as a capped entitlement limited to $1
billion in fiscal years 1992 and 1993, $1.1 billion in fiscal
year 1994, $1.3 billion in fiscal year 1995 and $1.0 billion
a year thereafter.

The Federal match is 90 percent for expenditures up to
the amount allotted to the States for the WIN program in
fiscal year 1987 ($126 million for all States). Of
additional amounts, the Federal match for nonadministrative
costs (including the costs of full-time JOBS personnel)
varies by State, but is at least 60 percent (and at most
79.99 percent in fiscal year 1992), and for administrative
costs is a flat 50 percent.

In fiscal year 1991, States obligated approximately $600
million of the $1 billion entitlement. For fiscal year 1992,
CBO projects that States will obligate two-thirds of the
available federal funds (or, $660 million). OMB estimates
that States will obligate $750 million in fiscal year 1992.

Description of Provision

Carryover of funds from fiscal year 1991.-- Under the
amendment, $100 million (approximately one-fourth) of the
JOBS entitlement funds left unobligated for fiscal year 1991
would be available for obligation by the States. States
would have one year after the date of enactment to obligate
these "carryover" funds, and would have to liquidate the
obligations within two years after the date of enactment. No
State match would apply to the carryover funds. The funds
would be allocated to each State based on its relative share
of JOBS obligations for fiscal year 1991. States would be
required to apply these 100% Federal funds to the JOBS
program, and to ensure that the funds do not supplant any
State or local funds used for the JOBS program.

Enhanced match for obligations above fiscal year 1991
level in fiscal year 1993.-- Each State would be subject to
the current law matching rates under the JOBS program for
obligations in fiscal year 1993 up to the State’s fiscal year
1991 obligation level (the latter number calculated not to
include any fiscal year 1991 funds carried over into fiscal
years 1992 and 1993). The State's JOBS obligations in fiscal
year 1993 that are in excess of the State's 1991 obligation



-85-

B. Revenue-Increase Provisions Previously
Passed by the Congress

1. Modify Estimated Tax Rules for Large Corporations
Present Law

A corporation is subject to an addition to tax for any
underpayment of estimated tax. For taxable years beginning
in 1993, 1994, 1995, and 1996, a corporation does not have an
underpayment of estimated tax if it makes four equal timely
estimated tax payments that total at least 95 percent of the
tax liability shown on the return for the current taxable
year. A corporation may estimate its current year tax
liability based upon a method that annualizes its income
through the period ending with either the month or the
quarter ending prior to the estimated tax payment date.

For taxable years beginning in 1992, the 95 percent
requirement is a 93 percent requirement; the 95 percent
requirement becomes a 90 percent requirement for taxable
years beginning in 1997 and thereafter.

A corporation that is not a “large corporation"
generally may avoid the addition to tax if it makes four
timely estimated tax payments each equal to at least 25
percent of its tax liability for the preceding taxable year
(the "100 percent of last year's liability safe harbor"). A
large corporation may use this rule with respect to its
estimated tax payment for the first quarter of its current
taxable year. A large corporation is one that had taxable
income of $1 million or more for any of the three preceding
taxable years.

Description of Proposal

For taxable years beginning after 1996, a corporation
that does not use the 100 percent of last year's liability
safe harbor for its estimated tax payments would be required
to base its estimated tax payments on 95 percent (rather than
90 percent) of its current year tax liability, whether such
liability is determined on an actual or annualized basis.

In addition, the proposal would add an additional set of
periods upon which a corporate taxpayer may base its
annualized income and would require a corporation to
prospectively select which set it would use.

The proposal would not change the present-law
availability of the 100 percent of last year's liability safe
harbor for large or small corporations.



Spee Ran OE ck

-72-
2. All Other Items Reported by
the Subcommittee on Human Resources

Description of Provisions

Foster Care/Child Welfare

fe}

Permanently extend and index for inflation the
authorization for the foster care independent living
program, and lower the age of eligibility to 14 years
old, at State option;

Permanently extend the foster and adoptive parent
training provisions at the 75 percent rate of Federal
reimbursement under the title IV-E foster care
maintenance payments program;

Postpone for one year collections under child welfare
services section 427 triennial reviews;

Research/Demonstrations/Studies

ce]

Extend the authorization for early child development
projects through fiscal year 1997 and authorize
appropriations not to exceed $3 million for each of
fiscal years 1993 through 1997;

Reimburse, as under H.R. 5354, qualified private
demonstration programs, such as the New Hope
demonstration in Wisconsin, with Federal saving that
will occur because its participants will no longer be
receiving Aid to Families with Dependent Children
(AFDC) and Medicaid benefits;

Require the Secretary of Health and Human Services
(HHS), as under S. 1256, to develop indicators and
predictors of

welfare dependency and to prepare an annual report on
welfare dependency in the United States; establish an
advisory board on welfare dependency to advise the
Secretary;

Extend the authorization of the U.S. Commission on
Interstate Child Support through September 30, 1992
and extend the Commission's deadline for filing its
report to Congress to August 1, 1992;

Extend the terms of service of the members of the
National Commission on Children through December 31,
1992;

Provide, as under H.R. 4046, for a joint report by
the Secretaries of Health and Human Services and
Agriculture to assist in decisions regarding



-57-
d. Failure to agree to extension not taken into account
Present Law

To qualify for an award of attorney's fees, the taxpayer
must have exhausted the administrative remedies available
within the IRS. The IRS has taken the position in
regulations that attorney's fees cannot be awarded if the
taxpayer has not agreed to extend the statute of limitations.
In Minahan v. Commissioner, 88 T.C. 492 (1987), the Tax Court
held that regulation invalid insofar as it provides that a
taxpayer's refusal to consent to extend the statute of
limitations is to be taken into account in determining
whether the taxpayer has exhausted administrative remedies
available to the taxpayer.

Description of Proposal

The proposal would provide that any failure to agree to
an extension of the statute of limitations cannot be taken
into account for purposes of determining whether a taxpayer
has exhausted the administrative remedies for purposes of
determining eligibility for an award of attorney's fees.

Effective Date

The proposal would apply to proceedings commenced after
the date of enactment.

9. Other Provisions

a. Relief from retroactive application of Treasury
Department Regulations

Present Law

Treasury may prescribe the extent (if any) to which
regulations shall be applied without retroactive effect.

Description of Proposal

Temporary and proposed regulations would be required to
have an effective date no earlier than the date of
publication in the Federal Register. This proposal may be
superseded by a legislative grant authorizing the Treasury to
prescribe the effective date with respect to a statutory
provision. The Treasury would be permitted to issue
retroactive temporary or proposed regulations to prevent
abuse of the statute. The Treasury would also be permitted
to issue retroactive temporary, proposed, or final
regulations to correct a procedural defect in the issuance of
a regulation. The Treasury may provide that taxpayers may
elect to apply a temporary or proposed regulation
retroactively from the date of publication of the regulation.



-5-

within a zone; (4) at least one-third of the employees are
residents of the zone; and (5) no more than five percent of
the average of the aggregate unadjusted bases of the property
owned by the business is attributable to (a) certain
financial property, or (b) collectibles not held primarily
for sale to customers in the ordinary course of an active
trade or business.

The leasing of real property that is located within the
tax enterprise zone to others would be treated as an active
trade or business if the use is directly related to the
conduct of the lessee's enterprise zone business, or the real
property is residential rental property that has been
substantially improved by the enterprise zone business. The
rental of personal property to others would not be treated as
an enterprise zone business unless substantially all the
customers are enterprise zone businesses or residents. The
holding or creating of intangibles for use by customers would
not be treated as an enterprise zone business unless
substantially all the customers are enterprise zone
businesses.

In determining whether an activity qualifies as an
"enterprise zone business," all activities conducted by a
sole proprietorship, partnership, or corporation would be
taken into account. However, activities of legally separate
(even if related) parties would not be aggregated.

Increased section 179 expensing.--The $10,000 expensing
allowance for depreciable business property provided under
section 179 would be increased to $20,000 for qualified
“enterprise zone businesses" (as defined above). As under
present law, the section 179 expensing allowance would be
phased out for taxpayers with investment in depreciable
business property during the taxable year exceeding $200,000
(i.e., the phase-out range for enterprise zone businesses
would be investment between $200,000 and $220,000).

The increased expensing allowance would apply for
purposes of the alternative minimum tax (i.e., it would not
be a preference item).

Ordinary loss treatment.--Loss on disposition of certain
property used in an enterprise zone business would be treated
as ordinary loss. The proposal would apply to property used
in an enterprise zone business for at least two years (five
years in the case of real property). Loss on disposition of
an ownership interest in an enterprise zone business held for
at least two years would be treated as ordinary loss.
Ordinary loss treatment would not be available for intangible
property, other than ownership interests in enterprise zone
businesses.



-28-

currency contract, notional principal contract, interest rate
swap or other similar finangial contract; (3) any interest in
land; (4) computer software“ that is readily available for
purchase by the general public, is subject toa ngnexclusive
license, and has not been substantially modified;* (5) other
computer software that is not acquired in a transaction (or a
series of related transactions) that involves the acquisition
of assets which constitute a trade or business (or a
substantial portion thereof); (6) any interest in a film,
sound recording, video tape, book, or other similar property
{including a right to broadcast or transmit a live event)
that is not acquired in a transaction (or a series of related
transactions) that involves the acquisition of assets which
constitute a trade or business (or a substantial portion
thereof); (7) certain rights to receive tangible property or
services; (8) certain interests in patents or copyrights; (9)
any interest under an existing lease of tangible property;
(10) any interest under an existing indebtedness (except for
the deposit base and similar items of a financial
institution); and (11) a franchise to engage in any
professional sport and any item acquired in connection with
such a franchise.

In addition, the Treasury Department would be authorized
to issue regulations that exclude from the definition of a
section 197 intangible a right received under a contract (or
any right granted by a governmental unit or an agency or
instrumentality thereof) if (1) the right is fixed in
duration or amount, and (2) the right is not acquired ina
transaction (or a series of related transactions) that
involves the acquisition of assets which constitute a trade
or business (or a substantial portion thereof).

Other rules

Special rules would apply if a taxpayer disposes of a
section 197 intangible that was acquired in a transaction or
series of related transactions and, after the disposition,
the taxpayer retains other section 197 intangibles that were

2 Computer software would be defined as any program that is
designed to cause a computer to perform a desired function
but would not include any data base other than a data base
that is in the public domain and that is incidental to the
software (e.g., a dictionary).

3 tea depreciation deduction is allowed with respect to any
computer software that is not a section 197 intangible, the
amount of such deduction would be determined by amortizing
the adjusted basis of the computer software ratably over a
36-month period that begins with the month that the computer
software is placed in service.



-64-
c. Reports on taxpayer rights education program
Present Law

The IRS is currently conducting a program to educate
revenue officers concerning the rights of taxpayers.

Description of Proposal

The proposal would require the IRS to report to the
tax-writing Committees on its taxpayer rights education
program for its officers and employees, including the scope
and content of the program, and on the effectiveness of the
program.

Effective Date

The report on the scope and content of the
taxpayer-rights education program would be required to be
submitted to the tax-writing committees by August 1, 1992,
and the report on the effectiveness of the program would be
required to be submitted by December 31, 1992.

d. Biennial reports on misconduct By IRS employees
Present Law

As mandated by the Inspector General Act, every six
months the Inspector General of the Department of the
Treasury receives information from the IRS for the Secretary
of the Treasury's semiannual report to Congress on employee
misconduct. The Inspector General Act, in part, requires
that these reports include summary information and
descriptions of significant investigative activities and a
summary of matters referred to prosecuting authorities and
the prosecutions and convictions that have resulted.

Description of Proposal

The proposal would require the IRS to report to the
tax-writing committees every two years on all cases involving
complaints about IRS employee misconduct and on the
disposition of those complaints.

Effective Date

The first report would be required to be submitted
during December 1992.



-66-

Description of Proposal

The proposal would require the GAO to conduct a review
of the IRS employee suggestion programs. The study would be
required to include a review of all suggestions that were
accepted and rewarded by the IRS, an analysis as to how many
of these suggestions were implemented, and why the remaining
suggestions were not implemented.

Effective Date
The report (and any recommendations) would be required

to be submitted to the tax-writing committees by December 31,
1992.


-67-

H. Technical Corrections Act (H.R. 1555)

Description of Proposal

The proposal would adopt the technical corrections
relating to revenues and to Social Security, human resources
and trade® that were contained in Titles I and III of H.R.
1555, as that bill passed the House of Representatives on
November 26, 1991, with the following modification:

1. Conforming Amendments Relating to Pension Reemployment
Rights of Members of the Uniformed Services

Legislative Background and Present Law

Veterans’ bill

H.R. 1578 ("Uniformed Services Employment and
Reemployment Rights Act of 1991") was passed by House of
Representatives on May 14, 1991. The bill was referred to
the Senate Committee on Veterans' Affairs on May 16, 1991.

On November 7, 1991, S. 1095 ("Uniformed Services Employment
and Reemployment Rights Act of 1991") was reported by the
Senate Committee on Veterans' Affairs (S. Rept. 102-203), and
is pending before the Senate.

H.R. 1578, as passed by the House, and S. 1095, as
reported by the Senate Committee on Veterans' Affairs, each
provides for reemployment rights and benefits for individuals
who serve voluntarily or involuntarily in the uniformed
services (i.e., the Armed Forces or the commissioned corps of
the Public Health Service). Each of the bills provides,
among other things, that for qualified retirement plan
purposes, service in the uniformed services is considered
service with the employer for benefit accrual purposes; the
employer who reemploys the individual is liable for funding
any resulting obligation; and the reemployed individual is
entitled to any accrued benefits attributable to employee
contributions to the extent that the individual makes
payments with respect to the contributions ("make-up
contributions").

Internal Revenue Code

Under the Internal Revenue Code, overall limits are
provided on contributions and benefits under qualified plans
based on the type of plan. Under a defined contribution
plan, the qualification rules limit the annual additions to
the plan with respect to each plan participant to the lesser

6 the proposal would not adopt the technical corrections
relating to Medicare in Title II of H.R. 1555.



-25-

III.--ITEMS PREVIOUSLY PASSED BY THE HOUSE

A. Simplification Provisions Generally Contained
in the House-Passed Version of H.R. 4210

Adopt the simplification provisions contained in H.R.
4210, as it passed the House of Representatives on
February 27, 1992, with the following modifications:

1. Pension Provisions

a. The provision repealing 10-year forward income
averaging for lump-sum distributions from qualified pension
plans would be dropped.

b. The provision repealing the special treatment of net
unrealized appreciation in employer securities would be
dropped.

c. The provisions relating to simplified employee
pensions (SEPs) would be dropped.

d. The provision relating to the alternative full
funding limit would be modified as follows: an employer
could elect the alternative limit if each plan in the
employer's controlled group is not top-heavy and the average
accrued liability of active participants is at least 80
percent of the plan's total accrued liability; the
notification to the Secretary would be required to be made by
the January 1 of the calendar year preceding the calendar
year in which the election period begins; a special notice
rule would apply to election periods beginning on or after
July 1, 1992, and before January 1, 1994; the Secretary is
required to notify plan sponsors who have not elected to have
the alternative limit apply of the adjusted limit applicable
to their plan; and a special correction rule applies to
reduce excess contributions made during the transition period
as a result of the adjusted limit applicable to nonelecting
plans. These modifications generally conform to the
provisions adopted in the conference agreement to H.R. 4210.

e. The provision relating to the application of health
care continuation rules to Savings and Loan Associations
would be modified to provide that the definition of employees
who are covered under the provision would be clarified to
include any individual who was provided coverage under a
group health plan of a failed depository institution by
virtue of the performance of services for such institution,
or any dependent of such individual. In addition, the
continuation plan maintained by the Federal Deposit Insurance
Corporation on the date of committee action, or any other
substantially similar plan, would be deemed to satisfy the
health care continuation requirements.



-77-

Cc. Oversight Subcommittee

1. Misuse of Symbols, Emblems or Names Related to the
Department of the Treasury, Internai Revenue Service,
and other Bureaus and Agencies.

Prohibits the use of certain names, symbols, and emblems
of the Department of the Treasury, and its subsidiary bureaus
and agencies in a manner which could reasonably be
interpreted or construed as conveying the false impression
that such activity is authorized by or associated with the
Treasury. Civil penalties would apply for noncompliance. A
report to the tax-writing committees regarding implementation
of the provisions would be required.

2. Certain Organizations Required to Disclose Nonexempt
Status.

Organizations which do not have Federal tax-exempt
status, but which claim in a solicitation to be nonprofit,
would be required to expressly state that they are not
tax-exempt under the Internal Revenue Code. Civil penalties
would apply for noncompliance.

3. Exempt Organizations Required to Provide Copies of
Certain Public Documents

Tax-exempt organization would be required to provide,
upon request, for a reasonable fee, a photocopy of the
organization's annual information returns and application for
tax-exempt status. Civil penalties would apply for
noncompliance.



-2-

economic distress (which may include distress from a high
incidence of crime and narcotics use); (3) with respect to
size, (a) does not exceed 20 square miles, (b) consists of
not more than three noncontiguous parcels, and (c) is located
entirely within one State; (4) an unemployment rate of at
least 1.5 times the national unemployment rate; (5) poverty
rates of at least 20 percent in each of 90 percent of the
area's census tracts; (6) does not include any portion of a
central business district (as described by the most recent
Census of Retail Trade defining such term); and (7) a
satisfactory course of action (described below) adopted by
the State and local governments designed to promote economic
development in the nominated area.

Eligibility criteria for rural zones.--To be nominated
as a rural development investment zone, an area would be
required to be either outside a standard metropolitan
statistical area or determined by the Secretary of
Agriculture to be a rural area. To be eligible for
designation, a nominated rural area would be required to
possess the following four characteristics: (1) a population
of at least 1,000; (2) a.condition of general economic
distress; (3) with respect to size, (a) does not exceed
10,000 square miles, (b) is located within not more than four
contiguous counties, (c) consists of not more than three
noncontiguous parcels, and (d) is located entirely within one
State (unless located on one or more Indian reservations);
and (4) a satisfactory course of action (described below)
adopted by the State and local governments for the nominated
area. In addition, a rural area would be required to meet at
least two of the following requirements: (1) an unemployment
rate of at least 1.5 times the national unemployment rate;
(2) poverty rates of at least 20 percent in each of 90
percent of the area's census tracts (or equivalent areas);
(3) a decline in employment (as measured by total wages) of
more than five percent over the five-year period prior to the
zone's designation; and (4) a decline in population of 10
percent or more over the period from 1980 to 1990.

Course of action.--In order for a nominated area to be
eligible for designation as a tax enterprise zone, the local
government and State in which the area is located would be
required to agree in writing that they will adopt (or
continue to follow) a specified course of action designed to
reduce burdens borne by employers or employees in the area.
A specified course of action may include one or more of the
following actions with respect to a nominated area:

(1) direct provision by the State or local government of
certain property insurance to businesses that are unable to
purchase comparable insurance coverage, or that are able to
purchase such coverage only at a cost which is significantly
higher than the state-wide average cost of such coverage;
(2) reduced tax rates or fees; (3) increased delivery of
local public services; (4) involvement in the program by


DESCRIPTION OF CHAIRMAN'S MARK

I.--PROVISIONS RELATING TO URBAN AND
RURAL DISTRESSED AREAS

A. Enterprise Zone Tax Incentives
Present Law

The Internal Revenue Code does not contain general rules
that target specific geographic areas for special Federal
income tax treatment. Within certain Code sections, however,
there are definitions of targeted areas for limited purposes
{e.g., low-income housing credit and qualified mortgage bond
provisions target certain economically distressed areas). In
addition, present law provides favorable Federal income tax
treatment for certain U.S. corporations that operate in
Puerto Rico, the U.S. Virgin Islands, or a possession of the
United States to encourage the conduct of trades or
businesses within these areas.

Description of Proposal

Designation of tax enterprise zones

In general.--A total of 50 tax enterprise zones could be
designated before the end of 1996. Tax enterprise zones
would be either urban tax enterprise zones or rural
development investment zones, and would be designated from
areas nominated by State and local governments, a
State-chartered economic development corporation, or a
governing body of an Indian reservation.

The Secretary of Housing and Urban Development (HUD)
could designate 25 urban zones (up to 8 zones selected in
1992 and 1993, 7 zones in 1994, 6 zones in year 1995, and 4
zones in year 1996). Any shortfall in designations of zones
may be carried forward to the next year, but not beyond 1996.

The Secretary of Agriculture (in consultation with the
Secretary of Commerce) could designate 25 rural zones (at
least one of which must be located on an Indian reservation).
The maximum number of rural zones designated each year would
be the same as with urban zones.

Zone designations generally would remain in effect for
15 years,

Eligibility criteria for urban zones.--To be eligible
for designation as an urban tax enterprise zone, a nominated
area would be required to have all of the following
characteristics: (1) a population of at least 4,000; (2) a
condition of pervasive poverty, unemployment, and general



-14-

level would be matched at a higher federal rate (90 percent),
up to the State's JOBS cap.

Carryover of funds from fiscal years 1992 and 1993.--
Fifty-percent of the entitlement funds left unobligated for
fiscal year 1992, and 100 percent of the funds left
unobligated for fiscal year 1993, would be available for
obligation by the States for fiscal years 1993 and 1994,
respectively. These "carryover" funds, now projected at $170
million and $250 million, respectively, would be allocated
among the States based on their relative shares of JOBS
obligations for fiscal year 1991. Carryover funds would be
eligible for the enhanced
90 percent matching rate in fiscal year 1993, but the Federal
match for carryover funds would revert to the variable rate
of current law in fiscal year 1994.

Modification to the 20-hour rule for JOBS .
participants.--For purposes of calculating JOBS participation
rates, States would have the option either on a case-by-case
basis or overall of (1) defining participation to include
persons who are satisfactorily participating in educational
or training activities and are given two hours of credit for
each hour of classroom instruction, or (2) adopting a
definition of "satisfactorily participating in educational
activities" that would satisfy the 20-hour rule as full-time
students who maintain a grade point average that is not below
the minimum required by their educational institution. Under
this option, to be treated as a full-time enrollee, a person
would have to be enrolled for the number of credit hours that
the institution regards as those of a full-time student.

State in-kind contribution under JOBS.--Would permit a
State's contribution for all JOBS funding to be in cash or in
kind, fairly evaluated up to 125 percent of the
WIN-equivalent sum.



services within the zone in a trade or business of the
employer.

The wage credit would be available with respect to 4
qualified employee, regardless of the number of other
employees who work for the employer or whether the employer
meets the definition of an "enterprise zone business" (which
applies for all other tax incentives described below).

Qualified wages would include the first $20,000 of wages
(generally defined as for FUTA purposes). Thus, the maximum
credit per employee would be $3,000 per year. Wages paid to
a qualified employee would continue to be eligible for the
credit if the employee earns more than $20,000, although only
the first $20,000 of wages would be eligible for the credit.

The credit would be allowed with respect to full-time
and part-time employees. However, if an employee is
terminated less than one year after initial employment, the

certain relatives of the employer or, if the employer is a
corporation, certain relatives of a person who owns more than
50 percent of the corporation. In addition, wages would not
be eligible for the credit if paid to a person who owns more
than five percent of the stock (or capital or profits
interests) of the employer,

To be eligible for the wage credit, an employer would be
required to notify all employees of the advance refundability
of the earned income tax credit (EITC),

The credit would not be refundable, and an employer's
deduction otherwise allowed for wages paid would be reduced
by the amount of credit claimed for that taxable year. The
credit would be subject to the general business credit

limitations (sec. 38) and, therefore, could not be used to

reduce tentative minimum tax.

Definition of "enterprise zone business".--The five
investment tax incentives described below (but not the
employer wage credit described above) would be available only
with respect to trade or business activities that satisfy the
criteria for an “enterprise zone business." Under the
proposal, a trade or business activity would qualify as an
"enterprise zone business" if; (1) at least 80 percent of the
gross income is derived from the active conduct of a trade or
business within a zone; (2) substantially all of the use of
its tangible Property occurs within a zone; (3) substantially
all of the services performed by employees are performed



-86-

A substantially similar proposal was contained in H.R.
4210 as passed by the House and Senate.

Effective Date

The proposal generally would be effective for estimated
tax payments with respect to taxable years beginning after
December 31, 1996. The changes to the periods upon which a
corporate taxpayer may base its annualized income would be
effective for estimated tax payments with respect to taxable
years beginning after December 31, 1992.



-79-

evidence of indebtedness; (4) any interest rate, currency, or
equity notional principal contract; and (5) any evidence of
an interest in, or any derivative financial instrument in, a
security described in (1) through (4) above or any currency,
including any option, forward contract, short position, or
any similar financial instrument in such a security or
currency (but not including a contract to which section
1256(a) applies).

Notwithstanding the definition of security, the
mark-to-market rules generally would not apply to: (1) any
security that is held for investment; (2) any evidence of
indebtedness that is acquired (including originated) by a
dealer in the ordinary course of a trade or business of the
dealer but only if the evidence of indebtedness is not held
for sale; (3) any security which is a hedge with respect to a
security that is not subject to the mark-to-market rules; and
(4) any security which is a hedge with respect to a position,
right to income, or a liability that is not a security in the
hands of the taxpayer.

The proposal is the same as was included in H.R. 4210 as
passed by the House and Senate, except for certain minor
technical modifications (including, for example,
clarification as to the application of the identification
rules to commitments to acquire mortgages).

Effective Date

As provided in H.R. 4210 as passed by the House and
Senate, the proposal would apply to taxable years ending on
or after December 31, 1992.

2. Modify Estimated Tax Requirements for Individuais
Present Law

Under present law, an individual taxpayer generally is
subject to an addition to tax for any underpayment of
estimated tax. An individual generally does not have an
underpayment of estimated tax if he or she makes timely
estimated tax payments at least equal to: (1) 100 percent of
the tax liability of the prior year (the "100 percent of last
year's liability safe harbor") or (2) 90 percent of the tax
liability of the current year. Income tax withholding from
wages is considered to be a payment of estimated taxes.

In addition, for taxable years beginning after 1991 and
before 1997, the 100 percent of last year's liability safe
harbor generally is not available to a taxpayer that (1) has
an adjusted gross income (AGI) in the current year that
exceeds the taxpayer's AGI in the prior year by more than
$40,000 ($20,000 in the case of a separate return by a
married individual) and (2) has an adjusted gross income



~82-

The proposal would also increase the minimum
distribution requirement that must be satisfied by a personal
service corporation that elects a taxable year other than the
required taxable year (including a personal service
corporation that has an election in effect on the date of
enactment of the proposal).

The proposal is the same as was included in H.R. 4210 as
passed by the House and Senate (except that the proposal
included in H.R. 4210 applied to taxable years beginning
after December 31, 1991).

Effective Date

The proposal would apply to taxable years beginning
after December 31, 1992.

4. Tax Treatment of Certain FSLIC Financial Assistance

Present Law and Background

A taxpayer may. claim a deduction for a loss on the sale
or other disposition of property only to the extent that the
taxpayer's adjusted basis for the property exceeds the amount
realized on the disposition and the loss is not compensated
for by insurance or otherwise (sec. 165 of the Code). A
similar rule applies for purposes of accounting for bad
debts.

A special statutory tax rule, enacted in 1981, excluded
from a thrift institution's income financial assistance
received from the Federal Savings and Loan Insurance
Corporation (FSLIC), and prohibited a reduction in the tax
basis of the thrift institution's assets on account of the
receipt of the assistance. Under the Technical and
Miscellaneous Revenue Act of 1988 (TAMRA), taxpayers
generally were required to reduce certain tax attributes by
one-half the amount of financial assistance received from the
FPSLIC pursuant to certain acquisitions of financially
troubled thrift institutions occurring after December 31,
1988. These special rules were repealed by FIRREA, but still
apply to transactions that occurred before May 10, 1989.

Prior to the enactment of FIRREA, the FSLIC entered into
a number of assistance agreements in which it agreed to
provide loss protection to acquirers of troubled thrift
institutions by compensating them for the difference between
the book value and sales proceeds of "covered assets."

A March 4, 1991 Treasury Department report ("Treasury
report") on tax issues relating to the 1988/89 FSLIC
transactions concluded that deductions should not be allowed
for losses that are reimbursed with exempt FSLIC assistance.
The Treasury report states that the Treasury view is expected



-20-

Secretary of the Treasury would be required to report to
Congress the results of a study of corporate sponsorship
payments and on the development of an advance valuation
procedure.

4. Employer-Provided Group Legal Services; Tax Exemption
for Qualified Group Legal Services Organizations

Present Law

Certain amounts contributed by an employer to and
benefits provided under a qualified group legal services plan
are excluded from an employee's gross income and wages for
income and employment tax purposes. The exclusion is limited
to an annual premium value of $70. The exclusion expires
after June 30, 1992.

Present law provides tax-exempt status for an
organization the exclusive function of which is to provide
legal services or indemnification against the cost of legal
services as part of a qualified group legal services plan.
The tax exemption for such an organization expires after
June 30, 1992.

Description of Proposal

The proposal would extend the exclusion from income for
employer-provided group legal services and the tax exemption
for group legal services organizations for 18 months, through
December 31, 1993.

A similar proposal was included in H.R. 4210 as passed
by the House and Senate, except that in H.R. 4210 the
exclusion and exemption were extended for 12 months rather
than 18 months.

Effective Date

The proposal would be effective for taxable years ending
after June 30, 1992.

5. Excise Tax on Certain Vaccines for the Vaccine Injury
Compensation Trust Fund

Present Law

The Vaccine Injury Compensation Trust Fund ("Vaccine
Trust Fund") provides a source of revenue to compensate
individuals who are injured (or die) as a result of the
administration of certain vaccines: diphtheria, pertussis,
and tetanus ("DPT"); diphtheria and tetanus ("DT"); measles,
mumps, and rubella ("MMR"); and polio. The Vaccine Trust
Fund is funded by a manufacturer's excise tax on DPT, DT,



CHAIRMAN'S MARK

OF REVENUE-RELATED PROVISIONS

(ENTERPRISE ZONES, EXTENSION OF CERTAIN
EXPIRING TAX PROVISIONS, TAX SIMPLIFICATION,
INTANGIBLE ASSETS, REAL ESTATE, LUXURY
EXCISE TAX, TAXPAYER BILL OF RIGHTS,
TECHNICAL CORRECTIONS, AND CERTAIN
REVENUE-RAISING PROVISIONS)
AND SUBCOMMITTEE PROPOSALS

Scheduled for a Markup
by the
HOUSE COMMITTEE ON WAYS AND MEANS

on June 24, 1992

Prepared by the Staff
of the

JOINT COMMITTEE ON TAXATION

June 23, 1992

JICX-24-92


-83-

to be challenged in the courts and recommended that Congress
enact clarifying legislation disallowing these deductions.

Description of Proposal

General rule

Any FSLIC assistance with respect to any loss of
principal, capital, or similar amount upon the disposition of
an asset would be taken into account as compensation for such
loss for purposes of section 165 of the Code. Any FSLIC
assistance with respect to any debt would be taken into
account for purposes of determining whether such debt is
worthless (or the extent to which such debt is worthless) and
in determining the amount of any addition to a reserve for
bad debts.

Financial assistance to which the FIRREA amendments apply

The proposal would not apply to any financial assistance
to which the amendments made by section 1401(a)(3) of FIRREA

apply.
No inference

No inference would be intended as to prior law or as to
the treatment of any item to which this proposal does not

apply.
Prior action

The proposal is identical to H.R.4210 as passed by the
House and the Senate.

Effective Date

In general

The proposal would apply to financial assistance
credited on or after March 4, 1991, with respect to (1)
assets disposed of and charge-offs made in taxable years
ending on or after March 4, 1991; and (2) assets disposed of
and charge-offs made in taxable years ending before March 4,
1991, but only for purposes of determining the amount of any
net operating loss carryover to a taxable year ending on or
after March 4, 1991.

9 Department of the Treasury, Report on Tax Issues Relating
to the 1988/89 Federal Savings and Loan Insurance Corporation
Assisted Transactions, March, 1991 at pp. 16-17.



-43-

for the next calendar year. This report would contain full
and substantive analysis, in addition to statistical
information. The second report would be on the activities of
the Taxpayer Advocate during the previous fiscal year.

Effective Date

The proposal would be effective on the date of
enactment. The first annual reports of the Taxpayer Advocate
would be due in 1992.

b. Expansion of authority to issue Taxpayer Assistance
Orders

Present Law

Section 7811(a) authorizes the Taxpayer Ombudsman to
issue a Taxpayer Assistance Order (TAO). TAOs may order the
release of taxpayer property levied upon by the IRS and may
require the IRS to cease any action, or refrain from taking
any action if, in the determination of the Taxpayer
Ombudsman, the taxpayer is suffering or about to suffer a
significant hardship as a result of the manner in which the
internal revenue laws are being administered.

Description of Proposal

The proposal would provide the Taxpayers' Advocate with
broader authority to affirmatively take any action with
respect to taxpayers who would otherwise suffer a significant
hardship as a result of the manner in which the IRS is
administering the tax laws. The proposal also would provide
that a TAO may specify a time period within which the TAO
must be followed. Finally, the proposal would provide that
only the Taxpayer Advocate, the Commissioner of the IRS, or a
superior of those two positions, as well as a delegate of the
Taxpayer Advocate, may modify or rescind a TAO.

Effective Date

The proposal would be effective on the date of
enactment.

2. Modifications to Installment Agreement Provisions

a. Notification of reasons for termination or denial of
installment agreements

Present Law

Section 6159 authorizes the IRS to enter into written
installment agreements with taxpayers to facilitate the
collection of tax liabilities. In general, the IRS has the
right to terminate (or in some instances, alter or modify)



-7-

and (c) substantially all of the use of which is in the zone;
and (6) the stock is certified by the local allocating
official (described below) as being eligible for the
expensing deduction.

The local allocating official with respect to a zone
would be a government official designated by the State and
local government, who would have the responsibility of
certifying, for each year the zone designation is in effect,
up to $30 million of enterprise zone business stock as being
eligible for the expensing deduction.

For purposes of the $25,000 annual limitation and the
$250,000 lifetime cap, an individual and certain members of
his family would be treated as a single individual.

The basis of stock would be reduced by the amount of the
deduction. In addition, gain on disposition of the stock
would be treated as ordinary income to the extent of the
amount allowed as a deduction, and interest would be payable
on certain premature dispositions. The deduction would be
allowed for purposes of the alternative minimum tax.

Tax-exempt financing.--The present-law qualified
redevelopment bond rules would be expanded as follows for
bonds, 95 percent or more of the net proceeds of which were
used in tax enterprise zones:

(1) Tax enterprise zones would per se qualify as
blighted areas during the first five years following their
designation as zones.

(2) The requirement that tax revenues be pledged as
security for the bonds would be liberalized to allow the
general purpose governmental unit within which a tax
enterprise zone was located to (a) directly guarantee
repayment of the bonds (other than by pledge of specific tax
revenues), or (b) purchase with non-bond local funds a letter
of credit or bond insurance. (The cost of the letter of
credit or bond insurance could not be recovered through bond
nonpurpose arbitrage profits.)

(3) In addition to the real property activities
currently eligible for qualified redevelopment bond
financing, all or any portion of the net proceeds of a bond
issue could be used to make loans to enterprise zone
businesses (as defined above) in amounts not exceeding
$2,500,000 per business (including related parties) for (a)
acquisition of land and buildings, (b) construction or
rehabilitation of buildings, and (c) costs of equipment used
in the business.



-6-

The ordinary loss treatment would apply only to losses
that are attributable to the period that the property is used
in an enterprise zone business. Losses from transactions
with related persons would not be eligible for the ordinary
loss treatment.

The ordinary loss treatment would apply for purposes of
computing regular and alternative minimum tax.

Capital gain deferral.--Taxpayers would be permitted to
defer recognition of capital gains attributable to periods
that property was used in an enterprise zone business (or,
for ownership interests, was held in such a business),
provided that the gain is re-invested in property used in an
enterprise zone business (or an ownership interest in such a
business).

The capital gain deferral would not apply to intangible
property (other than ownership interests in an enterprise
zone business) nor would it apply to gains attributable to
the severance of timber, coal, and other natural resources.

If an individual taxpayer disposes of stock in an
enterprise zone business with respect to which the expensing
deduction (described below) was claimed, then the amount
realized up to the amount of the expensing deduction is
treated as ordinary income not eligible for the capital gain
deferral. Taxpayers continuing to hold property that was
used in an enterprise business (or an ownership interest in
such a business) at the end of the 15-year zone designation
period would recognize any built-in gain when there is a
subsequent disposition of the property or, in the case of
tangible property, it is transferred out of the zone.

Stock expensing.--An individual would be allowed a
deduction for the amount paid in cash during any taxable year
to purchase certain stock in an enterprise zone business.

The amount of the deduction would be limited to $25,000 per
year {with a $250,000 lifetime cap).

Stock would qualify for the expensing deduction only if
it was issued by a domestic C corporation that (1) meets the
definition of an enterprise zone business (described above),
(2) does not have more than one class of stock outstanding,
(3) the sum of (a) the unadjusted bases of the assets owned
by the corporation and (b) the value of leased assets does
not exceed $5 million, (4) more than 20 percent of the total
value and total voting power of the stock of the corporation
is owned by individuals (directly or through partnerships or
trusts) or by estates, (5) the cash paid for the stock is
used by the issuing corporation within 12 months to acquire
property (a) which is tangible property (whether real or
personal) to which section 168 applies, (b) which is
originally used within the zone by the issuing corporation,



-56-
b. Motion for disclosure of information
Present Law

A taxpayer that successfully challenges a determination
of deficiency by the IRS may recover attorneys' fees and
other administrative and litigation costs if the taxpayer
qualifies as a "prevailing party." A taxpayer qualifies as a
prevailing party if it (1) establishes that the position of
the United States was not substantially justified; (2)
substantially prevails with respect to the amount in
controversy or with respect to the most significant issue or
set of issues presented; and (3) meets certain net worth and
(if the taxpayer is a business) size requirements.

Description of Proposal

The proposal would provide that once a taxpayer has
substantially prevailed, the taxpayer may file a motion for
an order requiring the disclosure (within a specified period)
of all information and copies of relevant records in the
possession of the IRS with respect to the taxpayer's case and
the substantial justification for the position taken by the
IRS. Disclosure under this provision would be subject to the
confidentiality restrictions of section 6103. Relevant
records would be required to be disclosed as quickly as
practicable. The provision would not require the disclosure
of privileged or otherwise non-disclosable information.

Effective Date

The proposal would be effective for notices made and
proceedings commenced after the date of enactment.

c. Increased limit on attorney fees
Present Law
Attorneys' fees recoverable by prevailing parties as
litigation or administrative costs are limited to a maximum

of $75 per hour.

Description of Proposal

The proposal would raise the statutory rate to $110 per
hour, indexed for inflation beginning after 1992.

Effective Date

The proposal would apply to notices made and proceedings
commenced after the date of enactment.



-39-
Effective Date
The proposal would be effective for property placed in

service in taxable years beginning after the date of
enactment.



-80-

(AGI) in excess of $75,000 in the current year ($37,500 in
the case of a separate return by a married individual).

Description of Proposal

The special rule that denies the use of the 100 percent
of last year's liability safe harbor would be repealed. In
addition, the 100 percent of last year's liability safe
harbor would be modified to be a 115 percent of last year's
liability safe harbor.

Thus, under the proposal, an individual generally would
not have an underpayment of estimated tax if he or she makes
timely estimated tax payments at least equal to: (1) 115
percent of the tax liability of the prior year or (2) 90
percent of the tax liability of the’ current year.

The proposal was included in H.R. 4210 as passed by the
House and the Senate (effective for taxable years beginning
after 1991).

Effective Date

The proposal generally would be effective for estimated
tax payments applicable to taxable years beginning after
December 31, 1992. Individuals who are denied the use of the
100 percent of last year's liability safé harbor for 1992
would be allowed to elect to use the 115 percent of last
year's liability safe harbor for 1992.

3. Taxable Year Election for Partnerships, S Corporations,
and Personal Service Corporations

Present Law

A partnership is generally required for Federal income
tax purposes to use the taxable year that is used by a
Majority of its partners. An S corporation is generally
required for Federal income tax purposes to use the calendar
year as its taxable year. A personal service corporation
also is generally required for Federal incgme tax purposes to
use the calendar year as its taxable year.

7 For this Purpose, a personal service corporation is
defined as a C corporation the principal activity of which is
the performance of services if (1) the services are
substantially performed by employee-owners, and (2) more than
10 percent of the stock of the corporation is owned by
employee-owners.



-27-

B. Amortization of Goodwill and Certain Other Intangibles
Present Law

In determining taxable income for Federal income tax
purposes, a taxpayer is allowed depreciation or amortization
deductions for the cost or other basis of intangible property
that is used in a trade or business or held for the
production of income if the property has a limited useful
life that may be determined with reasonable accuracy. No
depreciation or amortization deductions are allowed with
respect to goodwill or going concern value.

Description of Proposal

In general

An amortization deduction would be allowed with respect
to certain intangible property (defined as a “section 197
intangible") that is acquired by a taxpayer and that is held
by the taxpayer in connection with the conduct of a trade or
business or an activity engaged in for the production of
income. The amount of the deduction would be determined by
amortizing the adjusted basis of the intangible ratably over
a 14-year period.

The proposal generally would apply to a section 197
intangible whether it is acquired as part of a trade or
business or as a single asset. The proposal generally would
not change the Federal income tax treatment of self-created
intangible property, such as goodwill that is created through
advertising or other similar expenditures.

Definition of section 197 intangible

The term "section 197 intangible" would be defined as
any property that is included in any one or more of the
following categories: (1) goodwill and going concern value;
(2) certain specified types of intangible property that
generally relate to workforce, information base, know-how,
customers, suppliers, or other similar items; (3) any
license, permit, or other right granted by a governmental
unit or an agency or instrumentality thereof; (4) any
covenant not to compete (or other arrangement to the extent
that the arrangement has substantially the same effect as a
covenant not to compete) entered into in connection with the
direct or indirect acquisition of an interest in a trade or
business (or a substantial portion thereof); and (5) any
franchise, trademark, or trade name.

The term “section 197 intangible" would not include: (1)
any interest in a corporation, partnership, trust, or estate;
(2) any interest under an existing futures contract, foreign



-44-

such agreements if the taxpayer provided inaccurate or
incomplete information before the agreement was entered into,
if the taxpayer fails to make a timely payment of an
installment or another tax liability, if the taxpayer fails
to provide the IRS with a requested update of financial
condition, if the IRS determines that the financial condition
of the taxpayer has changed significantly, or if the IRS
believes collection of the tax liability is in jeopardy. If
the IRS determines that the financial condition of a taxpayer
that has entered into an installment agreement has changed
significantly, the IRS must provide the taxpayer with a
written notice that explains the IRS determination at least
30 days before altering, modifying or terminating the
installment agreement. No notice is statutorily required if
the installment agreement is altered, modified, or terminated
for other reasons.

Description of Proposal

The proposal would require the IRS to notify taxpayers
30 days before altering, modifying, or terminating any
installment agreement for any reason other than that the
collection of tax is determined to be in jeopardy. The IRS
must include in the notification an explanation of why the
IRS intends to take this action. The Proposal also would
require that the IRS notify taxpayers 30 days before denying
any installment agreement for any reason other than that the
collection of tax is determined to be in jeopardy.

Effective Date

The proposal would be effective six months after the
date of enactment.

b. Administrative review of denial of requests for, or
termination of, installment agreements

Present Law

A taxpayer whose request for an installment agreement is
denied can appeal to successively higher levels of Collection
Division management, including the District Director. The
IRS is currently testing an appeal process for various
collection actions, including installment agreements, that
will permit taxpayers to appeal these collection actions to
Appeals Division personnel.

Description of Proposal

The proposal would require the IRS to establish
additional procedures for administrative review by the
Appeals Division of denials of requests for installment
agreements and terminations of installment agreements.



-26-
2. Foreign Provisions

Certain technical modifications to the basis reporting
and common trust fund provisions would be included.

3. Mutual Fund Provisions

Certain technical modifications adopted in the
conference agreement to H.R. 4210 would be included.

4. Tax-Exempt Bond Provisions

Delete the provision relating to automatic extension of
certain construction bond temporary periods (rendered moot by
recent Treasury Department regulations).

5. Revocable Trust Provision

The provision that treats certain revocable trusts as
estates would be dropped.

6. Administrative Provisions

a. The provision to simplify payroll tax deposit
requirements would be dropped.

b. The provision repealing the tax shelter registration
rules would be dropped.



-63-
1l. Studies
a. Pilot program for appeal of enforcement actions
Present Law
A taxpayer who disagrees with an IRS collection action
generally can only appeal to successively higher levels of
Management in the Collection Division. Certain cases
involving the 6672 penalty, offers-in-compromise, and
employment tax issues may, however, be appealed to the
Appeals Division.

Description of Proposal

The proposal would require the IRS to establish a
one-year pilot program to evaluate the merits of allowing an
independent appeal, by the taxpayer, to the Appeals Division
of enforcement actions (including lien, levy, and seizure
actions) where the deficiency was assessed without the actual
knowledge of the taxpayer, where the deficiency was assessed
without an opportunity. for administrative appeal, and in
other appropriate circumstances.

Effective Date
The IRS would be required to report to the tax-writing
committees by December 31, 1992, on the effectiveness of this
pilot program.
b. Study on taxpayers with special needs
Present Law
The IRS is responsible for providing timely and accurate
assistance to taxpayers who want to comply with Federal tax

laws.

Description of Proposal

The proposal would require the IRS to conduct a study of
ways to assist the elderly, physically impaired,
foreign-language speaking, and other taxpayers with special
needs to comply with the tax laws.

Effective Date
The report (and any recommendations) would be required

to be submitted to the tax-writing committees by December 31,
1992.



-3-

public or private entities (e.g., community groups),
including a commitment to provide jobs and job training, and
technical, financial, or other assistance to employers,
employees, and residents of the area; (5) special preferences
granted to minority contractors; (6) donations of surplus
land to community organizations agreeing to operate
businesses on the land; (7) programs to encourage employers
to purchase health insurance for employees on a pooled basis;
(8) certain programs to encourage local financial
institutions to make loans to area businesses (with emphasis
on start-up firms and other small businesses); and (9)
special preferences for projects within the area in
allocations of the State's low-income housing credit ceiling
and private activity bonds ceiling. Programs which serve as
part of the required course of action could not be funded
with proceeds from any Federal program.

Selection process and criteria.--All designated tax
enterprise zones would be selected from nominated areas on
the basis of the following criteria (each of which would be
given equal weight): (1) the strength and quality of promised
contributions by State and local governments relative to
their fiscal ability; (2) the effectiveness and
enforceability of the guarantees that the promised course of
action actually will be implemented; (3) the level of
commitments by private entities of additional resources to
the economy of the nominated area, including the creation of
new or expanded business activities; (4) the average ranking
(relative to other nominated areas) with respect to (a) in
the case of a nominated urban zone, the degree of poverty and
unemployment, or (b) in the case of a nominated rural zone,
two of the following criteria that give the area a higher
average ranking: poverty, unemployment, job loss, or
population loss; and (5) the potential for revitalization of
the nominated area (including the potential reduction in the
incidence of crime and narcotics use and traffic), taking
into account particularly the number of jobs to be created or
retained.

Rules.--Within four months after the date of
enactment, the Secretary of HUD and the Secretary of
Agriculture would be required to promulgate rules (by notice
or regulation) regarding: (1) procedures for nominating tax
enterprise zones; (2) the method for comparing the enumerated
selection criteria; and (3) recordkeeping requirements to
assist in the preparation of studies to be submitted to
Congress (described below).

Tax incentives

Employer wage credit.--A 15 percent credit against
income tax liability would be available to all employers for

the first $20,000 of wages paid to each employee who (1) is a
zone resident, and (2) performs substantially all employment



-17-

II.~--EXTENSION OF CERTAIN OTHER EXPIRING TAX PROVISIONS
1. Research and Experimentation Tax Credit
Present Law

A 20-percent tax credit is allowed to the extent that a
taxpayer's qualified research expenditures for the current
year exceed its base amount for that year. The credit will
not apply to amounts paid or incurred after June 30, 1992.

The base amount for the current year generally is
computed by multiplying the taxpayer's "fixed-base
percentage" by the average amount of the taxpayer's gross
receipts for the four preceding years. A taxpayer's base
amount may not be less than 50 percent of its current-year
qualified research expenditures.

Qualified research expenditures eligible for the credit
consist of: (1) "in-house" expenses of the taxpayer for
research wages and supplies used in research; (2) certain
time-sharing costs for computer use in research; and (3) 65
percent of amounts paid by the taxpayer for contract research
conducted on the taxpayer's behalf.

In addition, the 20-percent tax credit also applies toa
corporate taxpayer's cash expenditures for university basic
research that exceed its base amount for such expenditures.

Description of Proposal

The research tax credit would be extended for 18 months
(i.e., for qualified research and university basic research
expenditures incurred through December 31, 1993). A 12-month
extension of the research credit was included in H.R. 4210 as
passed by the House and Senate.

Effective Date

The proposal would apply to expenditures incurred during
the period July 1, 1992, through December 31, 1993.

2. Exclusion for Employer-Provided Educational Assistance
Present Law

Under present law, an employee's gross income and wages
for income and employment tax purposes do not include amounts
paid or incurred by the employer for educational assistance
provided to the employee if such amounts are paid or incurred
pursuant to an educational assistance program that meets
certain requirements. This exclusion, which expires with
respect to- amounts paid after June 30, 1992, is limited to



-81-

A partnership, S corporation, or personal service
corporation, however, may elect to use a taxable year other
than the required taxable year. In the case of a
partnership, S corporation, or personal service corporation
that is adopting a taxable year or changing a taxable year,
the taxable year that may be elected generally may not result
in a deferral period of more than three months. For this
purpose, the deferral period generally is the number of
months between (1) the beginning of the taxable year of the
partnership, S corporation, or personal service corporation,
and (2) the close of the first required taxable year that
ends within such year.

A partnership or S corporation that elects a taxable
year other than the required taxable year is required to make
a payment to the Internal Revenue Service (a "required
payment") that is designed to compensate the Federal
government for the deferral of tax that results from the use
of a taxable year other than the required taxable year. A
personal service corporation that elects a taxable year other
than the required taxable year is required to satisfy a
minimum distribution requirement that applies to certain
amounts paid by the personal service corporation to
employee-owners.

Description of Proposal

A partnership, S corporation, or personal service
corporation would be allowed to elect any taxable year
without regard to the length of the deferral period of the
taxable year elected if the annual financial statements (if
any) of the entity used for credit purposes or provided to
the partners, shareholders, or other proprietors of the
entity cover the same period as the taxable year elected.

The proposal would increase the amount of the required
payment that must be made by a partnership or S corporation
that elects a taxable year other than the required taxable
year (including any partnership or S corporation that has an
election ig effect on the date of enactment of the
proposal). In addition, the proposal would require an
additional required payment for any taxable year that a
partnership or S corporation first makes a taxable year
election or changes a taxable year election to increase the
deferral period.

8 the required payment would be determined by using the
highest rate of tax in effect under section 1 of the Code
plus 2 percentage points.



-54-

has identified as a responsible person is permitted an
administrative appeal on the question of responsibility.

Description of Proposal

The proposal would require the IRS to issue a notice to
an individual the IRS had determined to be a responsible
person with respect to unpaid trust fund taxes at least 60
days prior to issuing a notice and demand for the penalty.
The statute of limitations would not expire before the date
60 days after the date on which the notice was mailed. The
provision does not apply if the Secretary finds that the
collection of the penalty is in jeopardy.

Effective Date

The proposal would apply to failures occurring after the
date of enactment.

b. No penalty if prompt notification of IRS
Present Law
A responsible person may be subject to a penalty equal
to 100 percent of the amount of trust fund taxes that are not
collected and paid to the Government on a timely basis.

Description of Proposal

The proposal would provide that a responsible person who
notifies the IRS within 10 days of the failure to pay over
trust fund taxes to the Government is not liable for this
penalty, so long as the notification is made prior to the
IRS's contacting the business about the failure to pay over
the taxes, and provided that the person is not a significant
owner (of a S-percent or more interest) or a highly
compensated employee (with compensation in excess of
$75,000).

Effective Date

The proposal would apply in the case of failures to
collect and pay over tax that occur after the date of
enactment.

c. Disclosure of certain information where more than one
person subject to penalty

Present Law

The IRS may not disclose to a responsible person the
IRS's efforts to collect unpaid trust fund taxes from other
responsible persons, who may also be liable for the same tax
liability.



-78-

V.--OTHER REVENUE-INCREASE PROVISIONS
A. Administration Proposals

1. Mark~to-Market Accounting Method for Dealers in
Securities

Present Law

A taxpayer that is a dealer in securities is required
for Federal income tax purposes to maintain an inventory of
securities held for sale to customers. A dealer in
securities is allowed for Federal income tax purposes to
determine (or value) the inventory of securities held for
sale based on: (1) the cost of the securities; (2) the lower
of the cost or market value of the securities; or (3) the
market value of the securities.

If the inventory of securities is determined based on
cost, unrealized gains and losses with respect to the
securities are not taken into account for Federal income tax
purposes. If the inventory of securities is determined based
on the lower of cost or market value, unrealized losses (but
not unrealized gains) with respect to the securities are
taken into account for Federal income tax purposes. If the
inventory of securities is determined based on market value,
both unrealized gains and losses with respect to the
securities are taken into account for Federal income tax
purposes.

For financial accounting purposes, the inventory of
securities generally is determined based on market value.

Description of Proposal

Certain securities that are held by a dealer in
securities would be marked to market for Federal income tax
purposes (i.e., gain and loss with respect to the securities
generally would be taken into account even though the
securities have not been disposed of by the dealer).

For this purpose, a dealer in securities would be
defined as any taxpayer that either (1) regularly purchases
securities from, or sells securities to, customers in the
ordinary course of a trade or business, or (2) regularly
offers to enter into, assume, offset, assign, or otherwise
terminate positions in securities with customers in the
ordinary course of a trade or business.

A security generally would be defined as: (1) any share
of stock in a corporation; (2) any partnership or beneficial
ownership interest in a widely held or publicly traded
Partnership or trust; (3) any note, bond, debenture, or other



-84-

For this purpose, financial assistance would be
considered to be credited when the taxpayer makes an approved
debit entry to a Special Reserve Account required to be
maintained under the assistance agreement to reflect the
asset disposition or write-down. An amount would also be
considered to be credited prior to March 4, 1991 if the asset
was sold, with prior FSLIC approval, before that date.

Application to certain net operating losses

The proposal would apply to the determination of any net
operating loss carried into a taxable year ending on or after
March 4, 1991, to the extent that the net operating loss is
attributable to a loss or charge-off for which the taxpayer
had a right to FSLIC assistance which had not been credited
before March 4, 1991.



-91-

(2) An overall $5,000 cap would be imposed on allowable
moving expenses (including expenses subject to the limit for
househunting, temporary living, and qualified settlement
expenses) for each qualified move (including foreign moves).

(3) An individual would be allowed, under section 62,
an above-the-line deduction in computing adjusted gross
income for an amount equal to the otherwise allowable
deduction for moving expenses but only to the extent such
expenses are reimbursed and included in the gross income of
the taxpayer under section 82.

(4) To the extent that moving expenses are
unreimbursed, the deduction would be made subject to the
2-percent floor on miscellaneous itemized deductions.

Effective Date

The proposal would be effective for moving expenses paid
or incurred after December 31, 1992.



-61-
d. Penalties relating to failure to collect and pay over tax
i. Public information requirements
Present Law
Under section 6672, a “responsible person" is subject to
a penalty equal to the amount of trust fund taxes that are
not collected and paid to the Government on a timely basis.

Description of Proposal

The proposal would require the IRS to print warnings on
payroll tax deposit coupon books and appropriate tax returns
indicating that certain employees may be liable for this
penalty, and to develop a special information packet relating
to this penalty.

Effective Date

The proposal would be effective on the date of
enactment.

ii. Board members of tax-exempt organizations
Present Law
Under section 6672, “responsible persons" of tax-exempt
organizations are subject to a penalty equal to the amount of
trust fund taxes that are not collected and paid to the
Government on a timely basis.

Description of Proposal

The proposal would clarify that the section 6672
responsible person penalty is not to be imposed on volunteer,
unpaid members of any board of trustees or directors of a
tax-exempt organization to the extent such members are solely
serving in an honorary capacity and do not participate in the
day-to-day or financial activities of the organization. The
proposal would require the IRS to develop materials to better
inform board members of tax-exempt organizations (including
voluntary or honorary members) that they may be treated as
responsible persons. The IRS would be required to make such
materials routinely available to tax-exempt organizations.
The proposal also would require the IRS to clarify its
instructions to IRS employees on application of the
responsible person penalty with regard to honorary or
volunteer members of boards of trustees or directors of
tax-exempt organizations.



-34-

The proposal applies to taxpayers subject to the passive
loss rule, other than closely held C corporations.

Effective Date

The proposal would be effective with respect to taxable
years beginning after December 31, 1991.

2. Increase Recovery Period for Depreciation of
Nonresidential Real Property

Present Law

A taxpayer is allowed to recover, through annual
depreciation allowances, the cost or other basis of real
property (other than land) that is used in a trade or
business or that is held for the production of rental income.
For regular tax purposes, the amount of the depreciation
deduction allowed with respect to nonresidential real
property for any taxable year is determined using the
straight-line method and a recovery period of 31.5 years.

Description of Proposal

For regular tax purposes, the depreciation deduction for
nonresidential real property would be determined by using a
recovery period of 38 years.

A similar proposal was included in H.R. 4210 as passed
by the House and Senate.

Effective Date

The proposal generally would apply to property placed in
service on or after the date of committee action. The
proposal would not apply to property that is placed in
service by a taxpayer before January 1, 1995, if (1) the
taxpayer or a qualified person entered into a binding written
contract to purchase or construct the property before June
23, 1992, or (2) construction of the property was commenced
by or for the taxpayer or a qualified person before June 23,
1992.

3. Changes Relating to Real Estate Investments by Pension
Funds and Others

Present Law

In general, a qualified pension trust or an organization
that is otherwise exempt from Federal income tax is taxed on
any income from a trade or business that is unrelated to the
organization's exempt purposes (Unrelated Business Taxable
Income or “UBTI") (sec. 511). Certain types of income,
including rents, royalties, dividends, and interest are



-74-
Child Support

o Require State child support enforcement agencies to
report monthly the names of any parent whose child
support payments have fallen behind two or more
months and the amounts of their arrears to consumer

reporting agencies unless the agencies refuse to
receive such information.



-35-

excluded from UBTI, except when such income is derived from
“debt-financed property." Income from debt-financed property
generally is treated as UBTI in proportion to the amount of
debt financing (sec. 514(a)). An exception to the rule
treating income from debt-financed property as UBTI is
available to pension trusts, educational institutions and
certain other exempt organizations that make certain
debt-financed investments in real property.

Additional rules provide generally that (1) gross income
from a publicly traded partnership is treated as UBTI, (2)
title holding companies (exempt under sec. 501(c)(2) or
(c)(25)) may not receive any amount of UBTI, (3) gains or
losses from the sale of property held primarily for sale to
customers are not excluded from UBTI, (4) five or fewer
investors (including domestic pension funds) cannot
collectively own more than 50 percent in value of the
outstanding stock of a real estate investment trust ("REIT").

Description of Proposal

The proposal would (1) extend the exception from UBTI
for certain additional debt-financed investments in real
property, (2) repeal the automatic UBTI rule for publicly
traded partnerships, (3) permit title holding companies to
receive small amounts of UBTI, (4) exclude from UBTI certain
gains from the disposition of property acquired from
financial institutions in conservatorships or receiverships,
(5) exclude from UBTI loan commitment fees and certain option
premiums, and (6) relax certain limitations on investments in
REITs by pension funds.

This proposal is the same as was included in H.R. 4210
as passed by the House and Senate.

Effective Date
The proposal generally would be effective for

acquisitions on or after June 24, 1992, and for taxable years
beginning after December 31, 1991.



-50-

Description of Proposal

The proposal would require the IRS to notify a taxpayer
in writing prior to commencing an examination and to provide
the taxpayer with an explanation of the examination process
prior to commencing the examination. The proposal would
exempt from this requirement any examination with respect to
which the Secretary determines (1) that it is in connection
with a criminal investigation, (2) that the collection of the
tax is in jeopardy, (3) that the requirements are
inconsistent with national security needs, or (4) that the
requirements would interfere with the effective conduct of a
confidential law enforcement or foreign counterintelligence
activity. This provision would not preclude the IRS from
using the telephone to attempt to schedule an examination, so
long as the written notice required by this provision is
given.

Effective Date

The proposal would be effective on the date of
enactment.

d. Modification of certain limits on recovery of civil
damages for unauthorized collection activities

Present Law

A taxpayer may sue the United States for up to $100,000
of damages caused by an officer or employee of the IRS who
recklessly or intentionally disregards provisions of the
Internal Revenue Code or the Treasury regulations promulgated
thereunder.

Description of Proposal

The proposal would increase the cap to $l million with
respect to reckless or intentional acts.

Effective Date

The proposal would apply to actions by IRS employees
that occur after the date of enactment.

e. Designated summons
Present Law

The period for assessment of additional tax with respect
to most tax returns, corporate or otherwise, is three years.
The IRS and the taxpayer can together agree to extend the
period, either for a specified period of time or
indefinitely. The taxpayer may terminate an indefinite



-23-

development (R&D) expenses. Upon issuance of these
regulations, a significant dispute regarding the appropriate
allocation of R&D expenses developed between taxpayers and
the Treasury Department. This unresolved dispute between
taxpayers and the Treasury Department precipitated
Congressional involvement on this issue, and since 1981, the
R&D allocation regulations have been subject to a series of
eight suspensions and temporary modifications. The current
temporary provision is applicable generally for the first six
months of the first taxable year beginning after August l,
1991, and among other rules, automatically allocates 64
percent of U.S. performed R&D to U.S. source income, and
generally permits a greater amount of taxable income to be
classified as foreign source than under the 1977 regulations.
This will increase the benefits of the foreign tax credit to
Many taxpayers.

Description of Proposal

The report of the committee on the bill would state the
committee's belief that the Treasury Department should now
resolve this controversy. The President's Budget for fiscal
year 1993 contains a proposal to provide an 18-month
extension of these R&D allocation rules. The General
Explanations of the President's Budget Proposals Affecting
Receipts dated January 1992, in a section entitled "Jobs and
Investments", states that the Administration believes in
providing tax incentives to increase the performance of
U.S.-based research activities. Further, the explanation
states that by enhancing the return on R&D expenditures, the
proposal encourages the growth of overall R&D activity as
well as the location of such research within the United
States.

The report would contain language indicating that the
committee believes that the Administration has broad
authority under current law to revise the current R&D
allocation regulations. The report would state that since
the Administration has indicated its support of an allocation
system that provides incentives to increase the performance
of U.S.-based research activities, the committee expects, and
in the strongest terms, urges the Treasury Department to
revise its permanent regulations in a manner consistent with
the Administration's stated objectives and proposals. The
report would state that the committee believes that such a
revision would be consistent both with current law regulatory
authority and with the stated goals of the Administration.

The report would state that the committee further urges
the Treasury Department, when revising its regulations, to
take into consideration that taxpayers, in appropriate
circumstances, are required for business purposes to conduct
significant amounts of R&D at foreign sites and should not be
penalized by the allocation rules.



-53-

Description of Proposal

The proposal would provide that, if any person willfully
files a false or fraudulent information return with respect
to payments purported to have been made to another person,
the other person may bring a civil action for damages against
the person filing that return. Recoverable damages would be
the greater of $5,000 or the amount of actual damages
(including the costs of the action). An action seeking
damages under this provision would be required to be brought
within six years after the filing of the false or fraudulent
information return.

Effective Date

The proposal would apply to false or fraudulent
information returns filed after the date of enactment.

c. Requirement to verify accuracy of information returns
Present Law

Deficiencies determined by the IRS are generally
afforded a presumption of correctness.

Description of Proposal

The proposal would provide that, in any court
proceeding, if a taxpayer asserts a reasonable dispute with
respect to any item of income reported on an information
return filed by a third party and the taxpayer has fully
cooperated with the IRS, the Government must, in presenting
evidence of the deficiency based on the information return,
present reasonable evidence of the deficiency (in addition to
the information return itself). One way in which the
taxpayer must cooperate with the IRS is to bring the
reasonable dispute over the item of income to the attention
of the IRS at the earliest possible time.

Effective Date

The proposal would be effective on the date of
enactment.

7. Modification To Penalty For Failure To Collect and
Pay Over Tax

a. Preliminary notice requirements
Present Law
A “responsible person" is subject to a penalty equal to

the amount of trust fund taxes that are not collected or paid
to the government on a timely basis. An individual the IRS



-62-
Effective Date

The proposal would be effective on the date of
enactment.

iii. Prompt notification
Present Law

The IRS is not required to notify promptly taxpayers who
fall behind in depositing trust fund taxes.

Description of Proposal

The proposal would require the IRS, to the maximum
extent practicable, to notify all taxpayers with delinquent
trust fund deposits within 30 days of the first indication
that there has been a failure to make a timely and complete
deposit. Failure to provide this notice would not absolve
any individual from any liability for this penalty.

Effective Date

The proposal would be effective on the date of
enactment.

e. Required notice to taxpayers of certain payments
Present Law
If the IRS receives a payment without sufficient
information to properly credit it to a taxpayer's account,
the IRS may attempt to contact the taxpayer. If contact
cannot be made, the IRS places the payment in an unidentified
remittance file.

Description of Proposal

The proposal would require the IRS to make reasonable
efforts to notify, within 60 days, those taxpayers who have
made payments which the IRS cannot associate with any
outstanding tax liability.

Effective Date

The proposal would be effective on the date of
enactment.



Administration ProposalsS....ceece ese ceees

Mark-to-market accounting

method for dealers in securities......

Modify estimated tax requirements

for individuals......... ccc eee e eee
Taxable year election for partnerships,

S corporations, and personal

service corporationS..........eeeeee

Tax treatment of certain FSLIC

financial assistance...........e0e0-

Revenue-Increase Provisions Previously

Passed by the Congress.

1.

Modify estimated tax rules
for large corporationS........eeeee

Revenue-Increase Provisions Previously
Passed by the House.......seeeeeeeeeeee

1.

Treatment of pre-contribution gain

on certain partnership redemptions..

Other Revenue-Increase Provisions........

1.

2.

Permanent extension of top

estate and gift tax rates..........
Limit on deduction for moving
EXPENSES... eee eee cece eee reece eeee

80
82

85

85

87

87
89

89
89


-42-

G. Taxpayer Bill of Rights 2
In General

The proposal generally follows the conference report on
H.R. 4210, except as otherwise noted in the description of
specific proposals.

1. Taxpayer Advocate

a. Establishment of position of Taxpayer Advocate within
Internal Revenue Service

Present Law

The Office of the Taxpayer Ombudsman was created by the
IRS in 1979. The Taxpayer Ombudsman's duties are to serve as
the primary advocate, within the IRS, for taxpayers. As the
taxpayers' advocate, the Taxpayer Ombudsman Participates in
an ongoing review of IRS policies and procedures to determine
their impact on taxpayers, receives ideas from the public
concerning tax administration, identifies areas of the tax
law that confuse or create an inequity for taxpayers, and
supervises cases handled under the Problem Resolution
Program. Under current Procedures, the Taxpayer Ombudsman is
selected by the Commissioner of the IRS and serves at his
discretion.

Description of Proposal

The proposal would establish a new position, Taxpayer
Advocate, within the IRS. This would replace the position of
Taxpayer Ombudsman. The Advocate would be nominated by the
President, by and with the advice and consent of the Senate.
The Advocate would report directly to the Commissioner.
Compensation of the Advocate would be at a level equal to
that of the IRS Chief Counsel.

The proposal also would establish the Office of Taxpayer
Advocate within the IRS. All Problem resolution officers
would be part of that office, and would be under the
supervision and direction of the Taxpayer Advocate. The
functions of the office would be (1) to assist taxpayers in
resolving problems with the IRS, (2) to identify areas in
which taxpayers have Problems in dealings with the IRS, (3)
to propose changes (to the extent possible) in the
administrative practices of the IRS that will mitigate those
problems, and (4) to identify potential legislative changes
that may mitigate those problems.

The Taxpayer Advocate would be required to make two
annual reports to the tax-writing Committees. The first
report would contain the objectives of the Taxpayer Advocate



-40-

F. Other Provisions Previously Passed by the House
1. Employer tax credit for PICA taxes paid on tip income
Present Law

Under present law, all employee tip income is treated as
employer-provided wages for purposes of the Federal
Unemployment Tax Act (FUTA) and the Federal Insurance
Contributions Act (FICA). For purposes of the minimum wage
provisions of the Fair Labor Standards Act (FLSA), reported
tips are treated as employer-provided wages to the extent
they do not exceed one-half of such minimum wage.

Description of Proposal

The proposal would provide a business tax credit in an
amount equal to the employer's FICA tax obligation (7.65
percent) attributable to reported tips in excess of those
treated as wages for purposes of satisfying the minimum wage
provisions of the FLSA. To prevent double dipping, no
deduction would be allowed for any amount taken into account
in determining the credit. Carryback of unused FICA credits
to a taxable year ending before the date of enactment would
be prohibited.

Effective Date

The provision would be effective for tips received and
wages paid after the date of enactment.

2. Deny deduction for club dues
Present Law

No deduction is permitted for club dues unless the
taxpayer establishes that his or her use of the club was
primarily for the furtherance of the taxpayer's trade or
business and the specific expense was directly related to the
active conduct of that trade or business. No deduction is
permitted for an initiation or similar fee that is payable
only upon joining a club if the useful life of the fee
extends over more than one year. Such initiation fees are
nondeductible capital expenditures.

Description of Proposal

No deduction would be permitted for club dues. This
rule would apply to all types of clubs: business, social,
athletic, luncheon, or sporting clubs. Specific business
expenses (e.g. meals) incurred at a club would be deductible
only to the extent they otherwise satisfy present-law
standards for deductibility.



~6 5-
e. Study of notices of deficiency
Present Law
Under section 6212, the IRS is required to send a notice
of tax deficiency to taxpayers by registered or certified

mail.

Description of Proposal

The proposal would require the GAO to study the
effectiveness of current IRS efforts to notify taxpayers with
regard to tax deficiencies under section 6212, the number of
registered or certified letters and other notices returned to
the IRS as undeliverable, any follow-up action taken by the
IRS to locate the taxpayers, the effect that failures to
receive actual notice have on taxpayers, and recommendations
on how the IRS can better notify taxpayers of tax
deficiencies.

Effective Date

The report and recommendations would be required to be
furnished by December 31, 1992.

f£. Notice and form accuracy study
Present Law
The IRS is responsible for providing accurate and
instructive notices, forms, and instructions to taxpayers to

assist them in complying with Federal tax laws.

Description of Proposal

The proposal would require the GAO to study annually the
accuracy of 25 of the most commonly used IRS forms, notices,
and publications. In conducting its review, the GAO would be
required to seek and consider the comments of organizations
representing taxpayers, employers, and tax professionals.

Effective Date
The initial report (and any recommendations) would be
required to be submitted to the tax-writing committees by
December 31, 1992.
g- IRS employees' suggestions study
Present Law
The IRS maintains several programs to encourage and

reward employees who make suggestions for improving the
administration of the tax system.



~10-
recipients of payments under means-tested programs,
economically disadvantaged (as measured by family income), or
disabled.

The credit is scheduled to expire for individuals who
begin work for an employee after June 30, 1992.

Authorization of appropriations

Present law authorizes appropriations for administration
and publicity expenses relating to the credit through
June 30, 1992.

Description of Proposal

The proposal would permanently extend the targeted jobs
tax credit and the authorization for appropriations. The
proposal would also restore individuals aged 23 and 24 to the
category of economically disadvantaged youth.

A similar proposal without the change to the category of
economically disadvantaged youth was included in H.R. 4210 as
passed by the House and Senate, except that in H.R. 4210 the
credit was extended for 12 months rather than-permanently.
The House version of H.R. 4210 included a permanent extension
of the credit.

Effective Date

The proposal would be effective for individuals who
begin work for an employer after June 30, 1992.

3. Qualified Mortgage Bonds and Mortgage Credit Certificates
Present Law

Qualified mortgage bonds ("QMBs") are bonds the proceeds
of which are used to finance the purchase, or qualifying
rehabilitation or improvement of single-family,
owner~occupied residences located within the jurisdiction of
the issuer of the bonds. Persons receiving QMB loans must
satisfy principal residence, purchase price, borrower income,
first-time homebuyer, and other requirements. Part or all of
the interest subsidy provided by QMBs is recaptured if the
borrower experiences substantial increases in income and
disposes of the subsidized residence within nine years after
it was purchased.

Qualified governmental units may elect to exchange
private activity bond volume authority for authority to issue
mortgage credit certificates ("MCCs"). MCCs entitle
home-buyers to nonrefundable income tax credits for a
specified percentage of the interest paid on mortgage loans



-52-

in which the examination of the corporation's return is being
conducted.

In addition, the proposal would require that the
corporation whose return is in issue be promptly notified in
writing in any case where the Secretary issues a designated
summons (or another summons, the litigation over which
suspends the running of the assessment period under the
designated summons procedure) to a third party. It is
expected that the IRS generally will meet this requirement by
issuing such notice on the same day that it issues such
summons, and by transmitting such notice to the corporation
in a manner reasonably designed to bring it to the prompt
attention of an agent of the corporation responsible for
communicating with the IRS in connection with the
examination.

Effective Date

The proposal would apply to summonses issued after date
of enactment.

6. Information Returns

a. Phone numbers of person providing payee statement
required to be shown on such statement

Present Law

Information returns must contain the name and address of
the payor. .

Description of Proposal

The proposal would require that information returns
contain the name, address, and phone number of the payor's
information contact.

Effective Date

The proposal would apply to statements required to be
furnished after December 31, 1992 (determined without regard
to any extension).

b. Civil damages for fraudulent filing of information
returns

Present Law

Federal law provides no private cause of action to a
taxpayer who is injured because a false or fraudulent
information return has been filed with the IRS asserting that
payments have been made to the taxpayer.



-58-

Final regulations may take effect from the date of
publication of the temporary or proposed regulation to which
they relate.

There may be additional instances in which retroactive
application of Treasury regulations has created undue
hardship. The proposal does not preclude the Congress from
both examining these cases and providing any appropriate
relief in the future.

Effective Date

The proposal would apply with respect to any’ temporary
or proposed regulation published on or after February 20,
1992, and any temporary or proposed regulation published
before February 20, 1992, and published as a final regulation
after that date.

b. Required content of certain notices
Present Law
The Code requires the IRS to describe the basis for and
identify the amounts of tax due, interest, penalties, and any
other additional amounts owed in the notice of deficiency
sent to taxpayers.

Description of Proposal

The proposal would require that the IRS set forth the
components of and explanation for each specific adjustment
that is the basis for the total tax deficiency. An
inadequate description would not invalidate the notice.

Effective Date

The proposal would apply to notices sent after the date
six months after the date of enactment.

c. Treatment of substitute returns for purposes of the
penalty for failure to pay taxes

Present Law

Section 665l(a)(2) provides that the IRS may assess a
penalty for failure to pay tax from the due date of the
return until the tax is paid. If no return is filed by the
taxpayer and the IRS files a substitute return under section
6020, the tax on which the penalty is measured is considered
a deficiency assessable under section 6212 or 6213, and the
failure to pay penalty begins to accumulate ten days after
the IRS sends the taxpayer a notice and demand for payment of
the tax.



-12-

The proposal is the same as was included in H.R. 4210,
as reported by the committee and passed by the House. The

conference agreement on that bill extended authority to issue
these bonds for 12 months.

Effective Date

The proposal would be effective for bonds issued after
June 30, 1992.



Iv.

Vv.

A.

B.

c.

G.

Hq.

Simplification Provisions Generally
Contained in House-Passed Version of

5 eS a 2

Amortization of Goodwill and Certain
Other Intangibles....... eee eee ee ee eeee

Real Estate ProvisSionS......eeeeeeereeeee

1. Modification of passive loss
rules for certain real estate
PETSONS. eee cece reese ener ee ececee

2. Increase recovery period for
depreciation of nonresidential
Teal PLOPerty.. cece cece erro vee

3. Changes relating to real estate
investments by pension funds
and OtherS......e eee e eee eee eaee

Luxury Excise Tax and Diesel Fuel Excise
Tax ON MOCOrboatsS....seeeceseceeesccceee

1. Repeal of luxury excise tax on
boats, aircraft, jewelry, and
furs; index luxury excise tax
ON VEHICLES... .. ee cece e eee e ec eeeee
2. Impose excise tax on diesel fuel
used in noncommercial motorboats...

Corporate Alternative Minimum Tax:
Elimination of ACE Depreciation
Adjustment for Corporate AMT............

Other Provisions Previously Passed by
the HOUSE... sees cece eee w cece nsec eeeecce

1. Employer tax credit for FICA taxes
paid on tip income......c..eeeeeeee
2. Deny deduction for club dues........

Taxpayer Bill of Rights 2...............4.

Technical Corrections Act (H.R. 1555).....

Subcommittee Legislation... ... ccc eee eee cece eee

A.
B.

Cc.

Human Resources Subcommittee.....-.....6e
Social Security Subcommittee.............

Oversight Subcommittee........ cece eee e eee

Other Revenue-Increase Provisions..........66.

25

27
32

32

34

34

36

36
36

38
40
40
40
42
67
69
69
75
77
78


-33-

Description of Proposal

The proposal is the same as the proposal contained in
H.R. 4210, with a technical modification.

If a taxpayer materially participates in the performance
of certain qualified real estate services and rental of
certain qualified real property (determined by treating all
these activities as a single activity), a portion of the
taxpayer's passive activity loss that does not exceed net
losses from the rental of the qualified real property
generally is allowed under the proposal.

The loss allowed under the proposal may not exceed 80
percent of the lesser of (1) the taxpayer's net income from
non-passive activities consisting of the performance of
qualified real estate services, or (2) the taxpayer's taxable
income (determined without regard to this proposal). A
similar rule applies with respect to passive activity
credits.

Qualified real estate services means services in the
construction, substantial renovation, and management of real
property or in the leasing and brokerage of real property
provided the taxpayer spends more than 500 hours during the
taxable year performing such leasing or brokerage services.
Services as an employee are not taken into account unless the
taxpayer owns more than a de minimis interest in the
employer, except in the case of services consisting of
leasing and brokerage of real property.

Qualified real property means real property if during
the taxable year the taxpayer actively participates in rental
activities with respect to the property. Active
participation has the same meaning as under present law,
except that the taxpayer is required to have an interest in
the property that is not de minimis, rather than to meet the
10 percent test of present law. For determining active
participation and material participation, except as provided
in regulations, no interest as a limited partner in a limited
partnership shall be treated as an interest with respect to
which the taxpayer actively or materially participates.

The proposal does not apply with respect to any real
property originally placed in service (by the taxpayer or
another person) after the date of committee action. Property
that is substantially renovated after that date is treated as
originally placed in service after that date. Property is
treated as substantially renovated after that date if, during
any 24-month period beginning after that date, expenditures
for renovation equal or exceed the adjusted basis of the
property at the start of the 24-month period. Expenditures
for renovation are any expenditures that are added to the
basis of the property.



-75-

B. Social Security Subcommittee

1. Misuse of symbols, Emblems or Names Related
to the Social Security Administration, Health Care
Financing Administration and the Department of Health
and Human Services

The civil monetary penalties against using the names and
symbols of the Social Security Administration (SSA) and the
Health Care Financing Administration (HCFA) in a misleading
fashion would be strengthened by including in the protections
the names and symbols of the Department of Health and Human
Services, eliminating the annual $100,000 cap on civil
monetary penalties, providing that a disclaimer on the
material is no defense against an action, and making other
improvements.

2. Clarification of Statutory Requirement for
Public Telephone Access to Local Social Security
Administration

The requirement that SSA maintain public telephone
access to local social security offices at the level
generally available on September 30, 1989, would be made more
explicit by requiring that the agency reestablish and
maintain the same number of public-inquiry telephone lines to
the offices as were in service on that date, including
telephone sets for the lines. SSA's 800-number service would
also be maintained.

3. Social Security Exclusion for Election Workers

The Federal Insurance Contributions Act (FICA) tax
exclusion for election workers would be raised from $100 to
$1,000 annually, beginning on January 1, 1993, and would be
indexed thereafter. In addition, a transition rule would
exclude election worker earnings for the period October 1,
1992, through December 31, 1992, if they did not exceed $500.

4. Social Security Coverage of Non-Cash Agricultural Wages

Non-cash remuneration paid to agricultural workers would
generally be covered by social security and therefore subject
to tax under FICA.

5. Use of Social Security Numbers for Jury Selection

States which collect social security numbers from
individuals for purposes permitted under current law would be
permitted to use those numbers to eliminate both duplicate
names and names of convicted felons from jury source lists.



-21-

MMR, and polio vaccines (and any other vaccines used to
prevent these diseases).

The vaccine excise tax will expire after the later of:
(1) December 31, 1992; or (2) the date on which the Vaccine
Trust Fund revenues exceed the projected liabilities with
respect to compensable injuries from vaccines administered
before October 1, 1992. Amounts in the Vaccine Trust Fund
are available for the payment of compensation with respect to
vaccines administered after September 30, 1988, and before
October 1, 1992.

Description of Proposal

The present-law excise taxes imposed on certain vaccines
and the Vaccine Trust Fund would be extended for two years
(through December 31, 1994, and October 1, 1994,
respectively).

The Treasury and Health and Human Services Departments
would be directed to study and report to the Committees on
Finance and Ways and Means by January 1, 1994, certain issues
regarding Vaccine Trust Fund funding needs, appropriateness
of imposition and rate of tax on covered vaccines, new
vaccines and immunization practices, and the treatment of
vaccines produced by State governmental entities.

The proposal was included in H.R. 4210 as passed by the
House and Senate.

Effective Date

The provisions would be effective on the date of
enactment.

6. Permanent Extension of General Fund Transfer to Railroad
Retirement Tier 2 Fund

Present Law

The proceeds from the income taxation of railroad
retirement tier 2 benefits are transferred from the general
fund of the Treasury to the Railroad Retirement Account.
This transfer applies only to proceeds from the taxation of
benefits which have been received prior to October 1, 1992.
Proceeds from the taxation of benefits received after this
date remain in the general fund.

Description of Proposal

Under the proposal, the transfer of proceeds from the
income taxation of railroad retirement tier 2 benefits from
the general fund of the Treasury to the Railroad Retirement
Account would be made permanent.



CONTENTS

INTRODUCTION. 02... e cece e cece cece cece cecteeeeeeteteceeecees (i)
DESCRIPTION OF CHAIRMAN'S MARK......eccceecescececececeses 1

I. Provisions Relating to Urban and Rural
Distressed Ar@AS.... eee eee ee cece wee e rere eens 1

A. Enterprise Zone Tax Incentives...........++- i

B. Permanent Extension of
Certain Expiring Tax Provisions............ 9

1. Tax credit for low-income

rental NOUSINg.... cc ee ece were ceeeeees 9
2. Targeted jobs tax credit.
3. Qualified mortgage bonds and

Mortgage Credit Certificates.......... 10
4. Qualified small-issue bonds............ 11

see ween eeeee 9

C. Jobs Training Program Modifications
and Welfare Reform......eceeeeceeceeeeceeee 13

1. Enhanced Federal match and carryover

funds for the JOBS program............ 13
2. Changes in treatment of assets

under AFDC... cee cece eee weer cc eeececee 15

II. Extension of Certain Expiring Tax Provisions.... 17

1. Research and experimentation

tax Credit... ee ece cece cece eee ceeececee 17
2. Exclusion for employer-provided

educational assistance.......... eeeeee 17
3. Contributions of appreciated

PLOPErt ys. eee e eee cece e are ecetererecee 18
4. Employer-provided group legal services. 20
5. Excise tax on certain vaccines for

the Vaccine Injury Compensation

Trust FUNG. cece eee cece e cece eeeeereses 20
6. Permanent extension of General

Fund transfer to Railroad Re-

tirement Tier 2 Fund... ....eeeeeeeeeee 21
7. Deduction for Health Insurance Costs

of Self-Employed Individuals.......... 22
8. Allocation and apportionment

of research eExpenseS......sceceeeceees 22

III. Items Previously Passed by the House........... 25



-90-

Deductible moving expenses are the expenses of
transporting the taxpayer and members of the taxpayer's
household, their household goods, and their personal effects
from the old to the new residence; the cost of meals and
lodging en route; the expenses for pre-move househunting
trips; temporary living expenses for up to 30 days (90 days
in the case of foreign moves~") in the general location of
the new job; certain expenses related to the sale or
settlement of a lease on the old residence; and certain
expenses related to the purchase or lease of a new residence
in the general location of the new job.

The moving expense deduction is subject to a number of
limitations. A maximum of $1,500 can be deducted for
pre-move househunting and temporary living expenses in the
general location of the new job. A maximum of $3,000
(reduced by any deduction claimed for househunting or
temporary living expenses) can be deducted for certain
qualified expenses for the sale and purchase of a residence
or settlement of a lease. For foreign moves, the above
limits are $4,500 and $6,000, respectively. If both a
husband and wife begin new jobs ‘in the same general location,
the move is treated as a single commencement of work. If a
husband and wife file separate returns, the maximum deduction
available to each is one-half of the amounts otherwise
allowed.

Also, in order for a taxpayer to claim a moving expense
deduction, his new principal place of work has to be at least
35 miles farther from his former residence than was his
former principal place of work (or his former residence, if
he has no former place of work).

Description of Proposal

The proposal would make four changes relating to the
deduction for moving expenses:

(1) The $1,500 limit ($4,500 limit for foreign moves)
on pre-move househunting and temporary living expenses in the
general location of the new job would be repealed. The
$3,000 limit on the sum of pre-move househunting expenses,
temporary living expenses, and qualified expenses for the
sale and purchase of a residence or settlement of a lease
would be retained. For foreign moves, this latter limit
would be reduced to $5,000.

10 Section 217(h)(3) defines a foreign move as the
commencement of work by the taxpayer at a new principal place
of work located outside the United States. .



-45-
Effective Date

The proposal would be effective on the date of
enactment.

c. Running of failure to Pay penalty suspended during the
period an installment agreement is in effect

Present Law

Section 6651 provides that a taxpayer is liable for a
"failure to pay” penalty on late Payments of tax. The
penalty is imposed on the unpaid tax at the rate of one-half
percent per month up to a maximum of 25 percent. The penalty
applies to unpaid amounts without regard to whether the
taxpayer is making payments pursuant to an installment
agreement.

Description of Proposal

The proposal would suspend the application of the
failure to pay penalty with respect to taxpayers who have
installment agreements in effect and are meeting the
conditions of the agreements.

Effective Date

The proposal would be effective for installment
agreements entered into after the date of enactment.

3. Interest

a. Extension of interest-free period for payment of tax
after notice and demand

Present Law
In general, a taxpayer must pay interest on late
payments of tax. An interest-free period of ten days is
provided to taxpayers who pay the tax due within ten days of
notice and demand.

Description of Proposal

The proposal would extend the interest-free period
provided to taxpayers for the payment of the tax liability
reflected in the notice from 10 days to 21 days, provided
that the total tax liability shown on the notice of
deficiency is less than $100,000.



-29-

acquired in such transaction or series or related
transactions. First, no loss would be recognized by reason
of such a disposition. Second, the adjusted bases of the
retained section 197 intangibles that were acquired in
connection with such transaction or series of related
transactions would be increased by the amount of any loss
that is not recognized.

An acquisition of (or distribution with respect to) an
interest in a partnership would not be treated as an
acquisition of the section 197 intangibles of the partnership
except to the extent of any positive adjustment to the basis
of the section 197 intangibles that occurs in connection with
such acquisition (or distribution). Furthermore, the special
treatment of liquidation payments made to a retiring or
deceased partner, under which payments for goodwill and
certain “unrealized receivables" may be treated as a
distributive share of partnership income, would no longer be
available except in the case of a general partner of a
partnership in which capital is not a material
income-producing factor.

Prior action

A similar proposal was included in H.R. 4210 as passed
by the House and the Senate.

Effective Date

In general

The proposal generally would apply to property acquired
after the date of enactment. A taxpayer would be allowed to
elect to apply the proposal to all property acquired after
July 25, 1991, by the taxpayer and any other person under
common control with the electing taxpayer (within the meaning
of section 41(£)(1) of the Internal Revenue Code).

In addition, a taxpayer would be allowed to elect to
apply present law (rather than the proposal) to property that
is acquired after the date of enactment if the property is
acquired pursuant to a binding written contract in effect on
the date of enactment and at all times thereafter until the
property is acquired. A taxpayer would not be allowed to
make this election if (1) the taxpayer makes the election
described above to apply the proposal to all property
acquired after July 25, 1991, or (2) the taxpayer makes the
election described below to apply the proposal to all
property acquired during certain open taxable years.



-38-

E. Corporate Alternative Minimum Tax: Elimination of ACE
Depreciation Adjustment for Corporate AMT

Present Law

Under present law, a corporation is subject to an
alternative minimum tax ("AMT") which is payable, in addition
to all other tax liabilities, to the extent that it exceeds
the corporation's regular income tax liability. Alternative
minimum taxable income ("AMTI") is the corporation's taxable
income increased by the corporation's tax preferences and
adjusted by determining the tax treatment of certain items in
a manner which negates the deferral of income resulting from
the regular tax treatment of those items. For a corporation,
the amount of AMT paid in a year may be carried forward as a
credit and used to reduce the corporation's regular tax
liability (but not below the corporation's tentative minimum
tax for the year).

One of the adjustments that is made to taxable income to
arrive at AMTI relates to depreciation. Depreciation on most
personal property to which the modified ACRS system adopted
in 1986 applies is calculated using the 150-percent declining
balance method (switching to straight line in the year
necessary to maximize the deduction) over the life described
in Code section 168(g) (generally the ADR class life of the
property).

For taxable years beginning after 1989, AMTI is
increased by an amount equal to 75 percent of the amount by
which adjusted current earnings ("ACE") exceeds AMTI (as
determined before this adjustment). The ACE adjustment
replaced the book-income adjustment applicable to tax years
1987 through 1989. In general, ACE equals AMTI with
additional adjustments that generally follow the rules
presently applicable to corporations in computing their
earnings and profits. For purposes of ACE, depreciation is
computed using the straight-line method over the class life
of the property. Thus, a corporation generally must make two
depreciation calculations for purposes of the AMT--once using
the 150-percent declining balance method and again using the
straight-line method.

Description of Proposal

The proposal would eliminate the depreciation component
of ACE for corporate AMT purposes. Thus, in computing ACE, a
corporation would use the same depreciation methods and lives
that it uses in computing AMTI (generally, the 150-percent
declining balance method for tangible personal property).

The proposal was included in H.R. 4210 as passed by the
House and Senate, with a different effective date.



-88-
Effective Date

The proposal would apply to partnership distributions
after the date of committee action.



-24-

The report language urging Treasury Department action
described above appeared in the Committee on Ways and Means
technical explanation of H.R. 4287, the Senate Finance
Committee technical explanation of H.R. 4210, and the
conference report accompanying H.R. 4210.

Effective Date

The report would state that the committee expects and
requests the Treasury Department to issue regulations
immediately, to be effective for all periods after the
termination of the current temporary rules.



-89-

D. Other Revenue-Increase Provisions
1. Permanent Extension of Top Estate and Gift Tax Rates
Present law

The Federal estate and gift taxes are unified so that a
single progressive rate schedule is applied to an
individual's cumulative gifts and bequests. The
generation-skipping transfer tax is computed by reference to
the maximum Federal estate tax rate.

For 1992, the Federal estate and gift tax rates begin at
18 percent on the first $10,000 of taxable transfers and
reach 55 percent on taxable transfers in excess of
$3,000,000. For transfers occurring after 1992, the maximum
Federal estate and gift tax rates are scheduled to decline to
50 percent on taxable transfers over $2,500,000.

In addition, the benefit of the graduated rates is
phased-out at a 5-percent rate for taxable transfers in
excess of $10,000,000 and $21,040,000.

Description of Proposal

The scheduled decline in the Federal gift and estate tax
rates would be deferred permanently.

Effective Date

The proposal would be effective for decedents dying, and
gifts made, after December 31, 1992.

2. Limit on Deduction for Moving Expenses
Present Law

An employee or self-employed individual may claim a
deduction from gross income for certain expenses incurred as
a result of moving to a new residence in connection with
beginning work at a new location (sec. 217). The deduction
is not subject to the floor that generally limits a
taxpayer's allowable miscellaneous itemized deductions to
those amounts that exceed 2 percent of his or her adjusted
gross income. Any amount received directly or indirectly by
a taxpayer as a reimbursement of moving expenses must be
included in the taxpayer's gross income as compensation (sec.
82). The taxpayer may offset this income by deducting the
moving expenses that would otherwise qualify as deductible
items under section 217.



-8-

All loans to private persons would have to be made
within 18 months after the. bonds were issued. To maximize
the interest rate subsidy to enterprise zone businesses, the
tax-exempt bond program arbitrage rules would not apply.
Additionally to ensure benefit to low-income residents,
housing bonds would continue to be subject to the existing
requirements for such bonds.

(4) The State private activity bond volume limitation
allocation requirement would be reduced from 100 percent to
50 percent.

(5) Repayments received from private persons using
proceeds of bond issues subject to these special rules would
have to be used to redeem bonds (i.e., recycling of proceeds
would not be permitted).

(6) If a business ceased to be a qualifying enterprise
zone business or if equipment were removed from the zone for
business use elsewhere (other than as a result of bankruptcy,
etc.) while a loan was outstanding, interest on the loan
would. become :nondeductible.

(7) If equipment financed with these bonds were removed
from the zone for use elsewhere (other than as a result of
bankruptcy, etc.) during the period when the zone designation
was in effect, a nondeductible penalty of 1.25 percentage
points of the total financing (both for equipment and real
property) received by the person from all bonds issued under
these special rules would be imposed.

Neither event in (6) or (7), above, would affect the
tax-exemption of interest on the bonds.

Studies

The Secretary of the Treasury and the Comptroller
General each would be directed to submit an interim report by
July 1, 1996, and a final report by July 1, 2001, to Congress
analyzing the effectiveness of the tax enterprise zones.

Effective Date

Tax enterprise zone designations could be made only
during calendar years 1992 through 1996. The tax incentives
provided for would be available during the period that the
designation remains in effect, which generally would be for
15 years after the designation first becomes effective.


-60-

extension of time to pay tax. The IRS would be required to do
so in both the income tax return instructions and collection
notices.

Effective Date

The proposal would be effective on the date of
enactment.

b. Improved procedures for notifying IRS of change of
address or name

Present Law

Generally, the IRS posts the new address of a taxpayer
only upon the filing of the subsequent tax return which
contains a new address or if the taxpayer submits a Form

8822, Change of Address, to the IRS.
Description of Proposal

The proposal would require the IRS to provide improved
procedures for taxpayers to notify the IRS of changes in
names or addresses. In. addition, the proposal would require
that the IRS institute procedures before 1993 for the timely
updating of all IRS records with change of address
information provided to the IRS by taxpayers.

Effective Date

The proposal would be effective on the date of
enactment.

c. Rights and responsibilities of divorced individuals
Present Law

The IRS provides information on the rights and
responsibilities of divorced individuals in Publication 504,
Tax_Information for Divorced or Separated Individuals. This
publication is not as widely utilized as Publication 1, Your
Rights As a Taxpayer.

Description of Proposal

The proposal would require the IRS to include a section
on the rights and responsibilities of divorced individuals in
Publication 1, Your Rights As a Taxpayer.

Effective Date

The proposal would be effective on the date of
enactment.



~76-

6. Authority for Optional Social Security Coverage
of Police and Firefighters in All States

The option currently available in 24 States for the
State to cover under social security police and firefighters
who participate in a public retirement system would be
expanded to apply to all States,

7. Limited Exemption from SECA for U.S. Ministers Working and
Resident in Canada

Limited relief from social security taxes would be
provided for U.S. citizens who are ministers residing and
working in Canada. The relief would be from double
taxation--taxation under both the U.S. and Canadian social
insurance systems on the same work--for years just prior to
the U.S. totalization agreement with Canada which eliminated
such double taxation.

8. Miscellaneous Amendments

Miscellaneous..amendments to the Social Security Act
would be made relating to: totalization benefits and the
Windfall Elimination Provision (WEP); application of the WEP
and the Government Pension Offset to social security benefits
for military reservists with inactive duty between 1956 and
1988; a rounding distortion in the indexation of the social
security wage base and the retirement earnings test exempt
amounts; the facility-of-payment provision; the subsequent
entitlement guarantee in Maximum Family Benefit cases; and
limited release of Social Security Administration information
for purposes of epidemiological research.



~46-
Effective Date
The proposal would apply in the case of any notice and
demand given after the date six months after the date of
enactment.
b. Expansion of authority to abate interest
Present Law
Any assessment of interest on any deficiency
attributable in whole or in Part to any error or delay by an
officer or employee of the IRS (acting in his official
capacity) in performing a ministerial act may be abated.

Description of Proposal

The proposal would expand the authority to abate
interest to managerial acts as well as ministerial acts.
Such managerial acts would include extensive delays resulting
from: the loss of records by the IRS, IRS personnel
transfers, extended illnesses, extended personnel training,
or extended leave.

Effective Date
The proposal would apply to interest accruing with
respect to deficiencies or Payments for taxable years
beginning after the date of enactment.
4. Joint Returns

a. Disclosure of collection activities with respect to joint
returns

Present Law

The IRS does not disclose collection information to
Spouses that have filed a joint return.

Description of Proposal

If a tax deficiency with respect to a joint return is
assessed, and the individuals filing the return are no longer
married or no longer reside in the same household, the
Proposal would permit the IRS to disclose in writing (in
response to a written request by one of the individuals) to
that individual whether the IRS has attempted to collect the
deficiency from the other individual, the general nature of
the collection activities, and the amount (if any) collected.



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has entered into an installment agreement to Satisfy the tax
liability, (3) the withdrawal of the lien will facilitate
collection of the tax liability, or (4) the withdrawal of the
lien would be in the best interests of the taxpayer and the
Government (with the consent of the taxpayer or the Taxpayer
Advocate). The proposal also would require that, at the
written request of the taxpayer, the IRS make reasonable
efforts to give notice of the withdrawal of a lien to credit
reporting agencies or financial institutions specified by the
taxpayer.

Effective Date

The proposal would be effective on the date of
enactment.

ii. Return of levied property
Present Law
The IRS is authorized to return levied property toa
taxpayer only when the taxpayer has overpaid its liability to
tax, interest, and penalty.

Description of Proposal

The proposal would allow the IRS to return property
(including money deposited in the Treasury) that has been
levied upon if the Secretary determines that (1) the levy was
Premature or otherwise not in accordance with the
administrative procedures of the IRS, (2) the taxpayer has
entered into an installment agreement to satisfy the tax
liability, (3) the return of the Property will facilitate
collection of the tax liability, or (4) the return of the
Property would be in the best interests of the taxpayer and
the United States (with the consent of the taxpayer or the
Taxpayer Advocate).

Effective Date

The proposal would be effective on the date of
enactment.

iii. Modifications in certain levy exemption amounts
Present Law
Property exempt from levy includes personal property
with a value of up to $1,650, and books and tools necessary

for the taxpayer's trade, business, or profession with a
value of up to $1,100.



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on their principal residences. MCCs are subject to the same
targeting requirements and recapture rules as QMBS.

Authority to issue QMBs and to elect to trade in private
activity bond volume authority to issue MCCs is scheduled to
expire after June 30, 1992.

Description of Proposal

The proposal would make permanent the authority to issue
QMBs and to elect to trade in bond volume authority to issue
MCCs.

The proposal also would provide rules for coordinating
certain local housing assistance subsidies with the QMB and
MCC programs in high housing cost areas.

The proposal is the same as was included in H.R. 4210,
as reported by the committee and passed by the House. The
conference agreement on that bill extended the QMB and MCC
programs for 12 months.

Effective Date

The extension proposal would be effective for periods
after June 30, 1992; the program modification would apply to
QMB and MCC financing provided after the date of enactment.

4. Qualified Small-Issue Bonds
Present Law

Interest on certain small issues of private activity
bonds issued by States or local governments ("qualified
small-issue bonds") is excluded from gross income if certain
conditions are met. First, at least 95 percent of the bond
proceeds must be used to finance manufacturing facilities or
certain agricultural land or equipment. Second, the bond
issue must have an aggregate face amount of $1 million or
less, or alternatively the aggregate face amount of the
issue, together with the aggregate amount of certain related
capital expenditures during the six-year period beginning
three years before the date of the issue and ending three
years after that date, must not exceed $10 million.

Authority to issue qualified small-issue bonds is
scheduled to expire after June 30, 1992.

Description of Proposal

The proposal would permanently extend the authority to
issue qualified small-issue bonds.