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ADDITIONAL MODIFICATIONS TO THE CHAIRMAN’S MARK OF S. 1637,

THE “JUMPSTART OUR BUSINESS STRENGTH (‘JOBS’) ACT,”

SCHEDULED FOR MARKUP BY THE SENATE COMMITTEE ON FINANCE

ON OCTOBER 1, 20031

The following additional proposals would be included in the Chairman's Mark:

A. Increase Section 179 Expensing

Present Law

Present law provides that, in lieu of depreciation, a taxpayer with a sufficiently small 

amount of annual investment may elect to deduct such costs. The Jobs and Growth Tax Relief 

Reconciliation Act (JGTRRA) of 20032 increased the amount a taxpayer may deduct, for taxable 

years beginning in 2003 through 2005, to $100,000 of the cost of qualifying property placed in 

service for the taxable year.3 In general, qualifying property is defined as depreciable tangible 

personal property that is purchased for use in the active conduct of a trade or business. The 

$100,000 amount is reduced (but not below zero) by the amount by which the cost of qualifying 

property placed in service during the taxable year exceeds $400,000. Prior to the enactment of 

JGTRRA (and for taxable years beginning in 2006 and thereafter) a taxpayer with a sufficiently 

small amount of annual investment may elect to deduct up to $25,000 of the cost of qualifying 

property placed in service for the taxable year. The $25,000 amount is reduced (but not below 

zero) by the amount by which the cost of qualifying property placed in service during the taxable 

 

1

 This document may be cited as Joint Committee on Taxation, Additional Modifications 

to the Chairman's Mark of S. 1637, the "Jumpstart Our Business Strength ('JOBS') Act," 

Scheduled for Markup by the Senate Committee on Finance on October 1, 2003 (JCX-87-03), 

October 1, 2003.

2

 Pub. Law No. 108-27, sec. 202 (2003).

3

 Additional section 179 incentives are provided with respect to a qualified property used 

by a business in the New York Liberty Zone (sec. 1400(f)) or an empowerment zone (sec. 

1397A).

Joint Committee on Taxation

October 1, 2003

JCX-87-03
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year exceeds $200,000. In general, qualifying property is defined as depreciable tangible 

personal property that is purchased for use in the active conduct of a trade or business. 

The amount eligible to be expensed for a taxable year may not exceed the taxable income 

for a taxable year that is derived from the active conduct of a trade or business (determined 

without regard to this provision). Any amount that is not allowed as a deduction because of the 

taxable income limitation may be carried forward to succeeding taxable years (subject to similar 

limitations). No general business credit under section 38 is allowed with respect to any amount 

for which a deduction is allowed under section 179.

Description of Proposal

The proposal provides that the $100,000 amount ($25,000 for taxable years beginning in 

2006 and thereafter) is reduced (but not below zero) by only one half of the amount by which the 

cost of qualifying property placed in service during the taxable year exceeds $400,000 ($200,000 

for taxable years beginning 2006 and thereafter). 

Effective Date

The proposal is effective for taxable years beginning after December 31, 2002.

B. Three-Year Carryback of Net Operating Losses

Present Law

A net operating loss (“NOL”) is, generally, the amount by which a taxpayer’s allowable 

deductions exceed the taxpayer’s gross income. A carryback of an NOL generally results in the 

refund of Federal income tax for the carryback year. A carryforward of an NOL reduces Federal 

income tax for the carryforward year.

In general, an NOL may be carried back two years and carried forward 20 years to offset 

taxable income in such years.4 Different rules apply with respect to NOLs arising in certain 

circumstances. For example, a three-year carryback applies with respect to NOLs (1) arising 

from casualty or theft losses of individuals, or (2) attributable to Presidentially declared disasters 

for taxpayers engaged in a farming business or a small business. A five-year carryback period 

applies to NOLs from a farming loss (regardless of whether the loss was incurred in a 

Presidentially declared disaster area). Special rules also apply to real estate investment trusts (no 

carryback), specified liability losses (10-year carryback), and excess interest losses (no carryback 

to any year preceding a corporate equity reduction transaction).

The alternative minimum tax rules provide that a taxpayer’s NOL deduction cannot 

reduce the taxpayer’s alternative minimum taxable income (“AMTI”) by more than 90 percent of 

the AMTI (determined without regard to the NOL deduction).

 

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 Sec. 172.
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Section 202 of the Job Creation and Worker Assistance Act of 20025 (“JCWAA”) 

provided a temporary extension of the general NOL carryback period to five years (from two 

years) for NOLs arising in taxable years ending in 2001 and 2002. In addition, the five-year 

carryback period applies to NOLs from these years that qualify under present law for a threeyear carryback period (i.e., NOLs arising from casualty or theft losses of individuals or 

attributable to certain Presidentially declared disaster areas). 

A taxpayer can elect to forgo the five-year carryback period. The election to forgo the 

five-year carryback period is made in the manner prescribed by the Secretary of the Treasury and 

must be made by the due date of the return (including extensions) for the year of the loss. The 

election is irrevocable. If a taxpayer elects to forgo the five-year carryback period, then the 

losses are subject to the rules that otherwise would apply under section 172 absent the provision.6

JCWAA also provided that an NOL deduction attributable to NOL carrybacks arising in 

taxable years ending in 2001 and 2002, as well as NOL carryforwards to these taxable years, 

may offset 100 percent of a taxpayer’s AMTI.7

Description of Proposal

The proposal provides for a three-year carryback of NOLs for NOLs arising in taxable 

years ending in 2003.8 

The proposal also allows an NOL deduction attributable to NOL carrybacks arising in 

taxable years ending in 2003 as well as NOL carryforwards to these taxable years, to offset 100 

percent of a taxpayer’s AMTI.

 

5

 Pub. Law No. 107-147.

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 Because JCWAA was enacted after some taxpayers had filed tax returns for years 

affected by the provision, a technical correction is needed to provide for a period of time in 

which prior decisions regarding the NOL carryback may be reviewed. Similarly, a technical 

correction is needed to modify the carryback adjustment procedures of sec. 6411 for NOLs 

arising in 2001 and 2002. These issues were addressed in a letter dated April 15, 2002, sent by 

the Chairmen and Ranking Members of the House Ways and Means Committee and Senate 

Finance Committee, as well as in guidance issued by the IRS pursuant to the Congressional letter 

(Rev. Proc. 2002-40, 2002-23 I.R.B. 1096, June 10, 2002). 

7

 Section 172(b)(2) should be appropriately applied in computing AMTI to take proper 

account of the order that the NOL carryovers and carrybacks are used as a result of this 

provision. See section 56(d)(1)(B)(ii).

8

 Because certain taxpayers may have already filed tax returns (or be in the process of 

filing tax returns) for taxable years ending in 2003, the proposal contains special rules to provide 

until November 1, 2003 in which prior decisions regarding the NOL carryback may be reviewed 

by taxpayers. 
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Effective Date

The three-year carryback proposal is effective for net operating losses generated in 

taxable years ending in 2003. The proposal relating to AMTI is effective for NOL carrybacks 

arising in, and NOL carryforwards to, taxable years ending in 2003.

C. Qualified Tax Collection Contracts

Present Law

In fiscal years 1996 and 1997, the Congress earmarked $13 million for IRS to test the use 

of private debt collection companies. There were several constraints on this pilot project. First, 

because both IRS and OMB considered the collection of taxes to be an inherently governmental 

function, only government employees were permitted to collect the taxes.9 The private debt 

collection companies were utilized to assist the IRS in locating and contacting taxpayers, 

reminding them of their outstanding tax liability, and suggesting payment options. If the 

taxpayer agreed at that point to make a payment, the taxpayer was transferred from the private 

debt collection company to the IRS. Second, the private debt collection companies were paid a 

flat fee for services rendered; the amount that was ultimately collected by the IRS was not taken 

into account in the payment mechanism.

The pilot program was discontinued because of disappointing results. GAO reported10

that IRS collected $3.1 million attributable to the private debt collection company efforts; 

expenses were also $3.1 million. In addition, there were lost opportunity costs of $17 million to 

the IRS because collection personnel were diverted from their usual collection responsibilities to 

work on the pilot.

The IRS has in the last several years expressed renewed interest in the possible use of 

private debt collection companies; for example, IRS recently revised its extensive Request for 

Information concerning its possible use of private debt collection companies.11 

In general, Federal agencies are permitted to enter into contracts with private debt 

collection companies for collection services to recover indebtedness owed to the United States.12

That provision does not apply to the collection of debts under the Internal Revenue Code.13 

 

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 Sec. 7801(a).

10 GAO/GGD-97-129R Issues Affecting IRS’ Collection Pilot (July 18, 1997).

11 TIRNO-03-H-0001 (February 14, 2003), at www.procurement.irs.treas.gov. The basic 

request for information is 104 pages, and there are 16 additional attachments.

12 31 U.S.C. sec. 3718.

13 31 U.S.C. sec. 3718(f).
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On February 3, 2003, the President submitted to the Congress his fiscal year 2004 budget 

proposal,14 which proposed the use of private debt collection companies to collect Federal tax 

debts. 

Description of Proposal

The proposal permits the IRS to use private debt collection companies to locate and 

contact taxpayers owing outstanding tax liabilities15 of any type16 and to arrange payment of 

those taxes by the taxpayers. Several steps are involved. First, the private debt collection 

company contacts the taxpayer by letter.17 If the taxpayer’s last known address is incorrect, the 

private debt collection company searches for the correct address. Second, the private debt 

collection company telephones the taxpayer to request full payment.18 If the taxpayer cannot pay 

in full immediately, the private debt collection company offers the taxpayer an installment 

agreement providing for full payment of the taxes over a period of as long as three years. If the 

taxpayer is unable to pay the outstanding tax liability in full over a three-year period, the private 

debt collection company obtains financial information from the taxpayer and will provide this 

information to the IRS for further processing and action by the IRS.

The proposal specifies several procedural conditions under which the provision would 

operate. First, provisions of the Fair Debt Collection Practices Act apply to the private debt 

collection company. Second, taxpayer protections that are statutorily applicable to the IRS are 

also made statutorily applicable to the private sector debt collection companies. Third, the 

private sector debt collection companies are required to inform taxpayers of the availability of 

assistance from the Taxpayer Advocate. Fourth, subcontractors are prohibited from having 

 

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 See Office of Management and Budget, Budget of the United States Government, 

Fiscal Year 2004 (H. Doc. 108-3, Vol. I), p. 274.

15 There must be an assessment pursuant to section 6201 in order for there to be an 

outstanding tax liability.

16 The bill generally applies to any type of tax imposed under the Internal Revenue Code. 

It is anticipated that the focus in implementing the provision will be: (a) taxpayers who have 

filed a return showing a balance due but who have failed to pay that balance in full; and (b) 

taxpayers who have been assessed additional tax by the IRS and who have made several 

voluntary payments toward satisfying their obligation but have not paid in full. 

17 Several portions of the provision require that the IRS disclose confidential taxpayer 

information to the private debt collection company. Section 6103(n) permits disclosure for “the 

providing of other services ... for purposes of tax administration.” Accordingly, no amendment 

to 6103 is necessary to implement the provision. It is intended, however, that the IRS vigorously 

protect the privacy of confidential taxpayer information by disclosing the least amount of 

information possible to contractors consistent with the effective operation of the provision.

18 The private debt collection company is not permitted to accept payment directly. 

Payments are required to be processed by IRS employees.
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contact with taxpayers, providing quality assurance services, and composing debt collection 

notices; any other service provided by a subcontractor must receive prior approval from the IRS. 

The proposal creates a revolving fund from the amounts collected by the private debt 

collection companies. The private debt collection companies will be paid out of this fund. The 

bill prohibits the payment of fees for all services in excess of 25 percent of the amount collected 

under a tax collection contract.19

Effective Date

The proposal is effective on the date of enactment.

 

19 It is assumed that there will be competitive bidding for these contracts by private 

sector tax collection agencies and that vigorous bidding will drive the overhead costs down.