Item

COMPARISON OF PROVISIONS OF H.R. 831

Present Law

House Bill

Senate Amendment

2. Repeal of special
rules applicable to
FCC-certified sales of
broadcast property
(sec. 2 of the House
bill and Senate
amendment)

Under Code section 1071, if the FCC
certifies that a sale or exchange of
property is necessary or appropriate to
effectuate a change in a policy of, or the
adoption of a new policy by, the FCC
with respect to the ownership and
control of “radio broadcasting stations,"
a taxpayer may elect to treat the sale or
exchange as an involuntary conversion,
subject to the rules in Code section
1033.

Under Code section 1033, gain realized
by a taxpayer from certain involuntary
conversions of property is deferred to
the extent the taxpayer purchases
property similar or related in service or
use to the converted property. Special
rules in Code section 1071 expand the
types of property that satisfy the
replacement requirement in the case of
FCC-certified sales. In addition, section
1071 allows a taxpayer to reduce the
adjusted basis of depreciable property
held at the end of the year in which the
sale or exchange occurs in lieu of
acquiring replacement property.

The bill would repeal Code section
1071.

Effective date.--The repeal of section
1071 would be effective for (1) sales or
exchanges on or after January 17, 1995,
and (2) sales or exchanges before that
date if the FCC tax certificate with
respect to the sale or exchange is issued
on or after that date. The provision
would not apply to taxpayers who have
entered into a binding written contract
(or have completed a sale or exchange
pursuant to a binding written contract)
before January 17, 1995, and who have
applied for an FCC tax certificate by that
date. A contract would be treated as
not binding for this purpose if the sale or
exchange pursuant to the contract (or
the material terms of the contract) were
contingent on January 16, 1995, on
issuance of an FCC tax certificate. A
sale or exchange would not be
contingent on January 16, 1995, on
issuance of an FCC tax certificate if the
tax certificate had been issued by the
FCC by that date.

Same as House bill.


Item

COMPARISON OF PROVISIONS OF H.R, 831

Present Law

House Bill

Senate Amendment

having relinquished his citizenship on the
date such statement is so furnished,
provided that the voluntary
relinquishment is later confirmed by the
issuance of aCLN. Any other U.S.
citizen to whom the Department of State
issues a CLN would be treated as having
relinquished his citizenship on the date
the CLN is issued to the individual. A
naturalized citizen is treated as having
relinquished his citizenship on the date a
court of the United States cancels his
certificate of naturalization.

An individual who is subject to the tax
on expatriation would be required to pay
a tentative tax equal to the amount of
tax that would have been due based on a
hypothetical short tax year that ended on
the date the individual relinquished his
citizenship. The tentative tax would be
due on the 90th day after the date of
relinquishment.

The amendment would provide that the
time for the payment of the tax on
expatriation may be extended for a
period not to exceed 10 years at the
request of the taxpayer, as provided by
section 6161.

The amendment would authorize the
Treasury Department to issue
regulations to permit a taxpayer to


Item

COMPARISON OF PROVISIONS OF ELR. 831

Present Law

House Bill

Senate Amendment

4. Unearned income
test for earned income
tax credit (sec. 4 of
the House bill and
Senate amendment)

Eligible low-income workers are able to
claim a refundable earned income tax
credit (EITC). The amount of the credit
an eligible taxpayer may claim is
determined by multiplying the credit rate
by the taxpayer’s eamed income up to
an earned income threshold. The credit
amount is phased out for taxpayers with
earned income (or adjusted gross
income, if greater) in excess of the
phaseout threshold. There is no
additional limitation on the amount of
unearned income that the taxpayer may
receive.

Under the House bill, a taxpayer would
not be eligible for the EITC if the
aggregate amount of interest and
dividends includible in the taxpayer’s
income for the taxable year exceeds
$3,150. The otherwise allowable EITC
amount would be phased out ratably for
taxpayers with aggregate taxable interest
and dividend income between $2,500
and $3,150.

For taxable years beginning after 1996,
the $2,500 threshold and the $650 size
of the phaseout would be indexed for
inflation with rounding to the nearest
multiple of $10.

Effective date.--The provision would be

effective for taxable years beginning
after December 31, 1995.

{A floor amendment offered by Mr. McDermott
would have provided, in addition to other items,
that a taxpayer would not be eligible for the EITC
if the aggregate amount of disqualified income of
the taxpayer for the taxable year exceeds $2,500.
Disqualified income would include the aggregate
amount of interest and dividends includible in the
taxpayer's income for the taxable year plus (1)
tax-exempt interest and (2) gross income from
rents and royalties. The floor amendment was
defeated, 191-234.}

Under the Senate amendment, a
taxpayer would not be eligible for the
EITC if the aggregate amount of
disqualified income of the taxpayer for
the taxable year exceeds $2,450.
Disqualified income would include the
aggregate amount of interest and
dividends includible in the taxpayer’s
income for the taxable year plus (1) tax-
exempt interest and (2) net income (if
greater than zero) from rents and
royalties not derived in the ordinary
course of business. °

Effective date.-- Same as House bill.



Item

COMPARISON OF PROVISIONS OF H.R. 831

Present Law

House Bill

Senate Amendment

3. Modification of
Code section 1033
(sec. 3 of the House
bill and Senate
amendment)

Under Code section 1033, gain realized
by a taxpayer from certain involuntary
conversions of property is deferred to
the extent the taxpayer purchases
property similar or related in service or
use to the converted property. The
replacement property may be acquired
directly or by acquiring control of a
corporation that owns replacement
property.

Under rulings issued by the IRS to
taxpayers, property (stock or assets)
purchased from a related person may, in
some cases, qualify as property similar
or related in service or use to the
converted property. Thus, in certain
circumstances, related taxpayers may
obtain significant (and possible
indefinite) tax deferral without any
additional cash outlay to acquire new
properties.

The House bill would provide that a
taxpayer may not defer gain under Code
section 1033 when the replacement
property or stock is purchased from a
related person. Under the bill, a person
would be treated as related to another
person if the relationship between the
persons would result in a disallowance
of losses under the rules of Code
sections 267 or 707(b).

Effective date.--The provision would
apply to replacement property or stock
acquired on or after February 6, 1995.

Same as House bill, except that the rule
would apply only to subchapter C
corporations. In addition, a taxpayer
could purchase replacement property or
stock from a related person and defer
gain to the extent the related person
acquired the replacement property or
stock from an unrelated person within
the period prescribed under Code
section 1033.

The amendment also would provide that
sales or exchanges that are certified by
the FCC as having been made by a
taxpayer in connection with the
relocation of the taxpayer from the
1850-1990MHz spectrum by reason of
the FCC's reallocation of that spectrum
for use for personal communications
services ("PCS") would be treated as
involuntary conversions to which Code
section 1033 would apply.

Effective date.--The provision
prohibiting the purchase of qualified
replacement property from a related
party would apply to involuntary
conversions occurring on or after
February 6, 1995. The provision
treating certain microwave relocation
transactions as involuntary conversions
would apply to sales or exchanges
occurring before January 1, 2000.


Be:

Ff

Item

COMPARISON OF PROVISIONS OF H.R. 831

Present Law

House Bill

Senate Amendment

property made by nondomiciliaries
where the property is located in the
United States at the time of the gift.
Special rules apply to the estate and gift
tax treatment of individuals who
relinquished their U.S. citizenship within
10 years of death or gift, if the
individual's loss of U.S. citizenship has
as one of its principal purposes a tax
avoidance motive.

excess contributions or contributions
that violate any condition for tax-
favored treatment), and, under
regulations, interests in foreign pension
plans and similar retirement plans or
programs (up to a maximum amount of
$500,000).

Under the provision, an expatriate who
is a beneficiary of a trust would be
deemed to own a separate trust
consisting of the assets allocable to his
share of the trust, in accordance with his
interest in the trust. The separate trust
would be treated as selling its assets for
fair market value immediately before the
beneficiary relinquishes his citizenship,
and distributing all resulting income and
corpus to the beneficiary.

A US. citizen who renounces his U.S.
nationality before a diplomatic or
consular officer of the United States
would be treated as having relinquished
his citizenship on that date, provided
that the renunciation is later confirmed
by the issuance of a certificate of loss of
nationality ("CLN") by the U.S.
Department of State. A U.S. citizen
who furnishes to the Department of
State a signed statement of voluntary
relinquishment of U.S. nationality
confirming the performance of an
expatriating act would be treated as



COMPARISON OF PROVISIONS OF H.R. 831 --
PERMANENT EXTENSION OF DEDUCTION FOR
HEALTH INSURANCE COSTS OF SELF-EMPLOYED INDIVIDUALS,
AS PASSED BY THE HOUSE AND THE SENATE

Prepared by the Staff
of the
Joint Committee on Taxation
March 28, 1995
JCX-17-95



COMPARISON OF PROVISIONS OF H.R. 831

Item Present Law House Bill Senate Amendment

allocate the taxable gain (net of any
applicable exclusion) to the basis of
assets taxed under this provision,
thereby preventing double taxation if the
assets remain subject to U.S. tax
jurisdiction.

Effective date.--The provision would be
effective for U.S. citizens who relinquish
their U.S. citizenship (as determined
under the bill) on or after February 6,
1995. The tentative tax would not be
required to be paid until 90 days after
the date of enactment of the bill.

Present law would continue to apply to
U.S. citizens who relinquished their
citizenship prior to February 6, 1995,



Item

COMPARISON OF PROVISIONS OF ELR. 831

Present Law

House Bill

Senate Amendment

5. Imposition of tax
on US. citizens who
relinquish citizenship
(sec. 5 of the Senate
amendment)

U.S. citizens and residents generally are
subject to U.S. income taxation on their
worldwide income. The United States
imposes tax on gains recognized by
foreign persons that are attributable to
dispositions of interests in U.S. real
property. Distributions, including lump-
sum distributions, that foreign persons
receive from qualified U.S. retirement
plans generally are subject to U.S. tax at
a 30-percent rate.

AUS. citizen who relinquishes U.S.
citizenship with a principal purpose to
avoid Federal tax may be subjected to
an alternative taxing method for 10
years after expatriation (sec. 877).
Under this alternative method, the
expatriate generally is taxed on his U.S.
source income (net of certain
deductions), as well as on certain
business profits, at rates applicable to
U.S. citizens and residents.

The United States imposes its estate tax
on the worldwide estates of persons
who were citizens or domiciliaries of the
United States at the time of death, and
on certain property belonging to
nondomiciliaries of the United States
which is located in the United States at
the time of their death. The U.S. gift tax
is imposed on all gifts made by U.S.
citizens and domiciliaries, and on gifts of

No provision.

[A floor amendment offered by Mr. McDermott
would have imposed an expatriation tax in the
form proposed by the President and introduced in
H.R. 981, in addition to other items, The floor
amendment was defeated, 191-234.]

Under the Senate amendment, a U.S.
citizen who relinquishes citizenship
generally would be treated as having
sold all of his property at fair market
value immediately prior to the
expatriation. Gain or loss from the
deemed sale would be recognized at that
time, generally without regard to other
provisions of the Code. Net gain on the
deemed sale would be recognized under
the bill only to the extent it exceeds
$600,000 ($1.2 million in the case of
married individuals filing a joint return,
both of whom expatriate).

Property treated as sold by an
expatriating citizen under the provision
would include all items that would be
included in the individual's gross estate
under the Federal estate tax if such
individual were to die on the day of the
deemed sale, plus certain trust interests
that are not otherwise includible in the
gross estate and other interests that may
be specified by the Treasury Department
in order to carry out the purposes of the
provision.

Certain types of property generally
would not be taken into account for
purposes of determining the expatriation
tax: U.S. real property interests,
interests in qualified retirement plans
(other than interests attributable to


Item

COMPARISON OF PROVISIONS OF H.R. 831

Present Law

House Bill

Senate Amendment

1. Deduction for
health insurance costs
of self-employed
individuals (sec. 1 of
the House bill and
Senate amendment)

Prior law provided a 25-percent
deduction for the amount paid for health
insurance for a self-employed individual
and the individual's spouse and
dependents. The 25-percent deduction
expired for taxable years beginning after
December 31, 1993,

The House bill would reinstate the 25-
percent deduction for taxable years
beginning in 1994 and would extend the
deduction permanently.

Effective date.--The provision would be

effective for taxable years beginning
after December 31, 1993.

Same as House bill, except that the
deduction would be increased to 30
percent for taxable years beginning in
1995 and thereafter.

Effective date.--Same as House bill.


INTRODUCTION

This document,’ prepared by the staff of the Joint Committee on
Taxation, provides a comparison of the provisions of H.R. 831 as passed
by the House and the Senate.

The House passed H.R. 831 on February 21, 1995, by a vote of
381-44, The Senate passed H.R. 831, as modified by the Senate
Committee on Finance, on March 24, 1995, by a voice vote.

A separate document provides a comparison of the estimated
budget effects of H.R. 831 as passed by the House and the Senate.

* This document may be cited as follows: Joint Committee on
Taxation, Comparison of Provisions of H.R. 831--Permanent Extension of
Deduction for Health Insurance Costs of Self-Employed Individuals, as
Passed by the House and the Senate (JCX-17-95), March 28, 1995.

ii



1. Deduction for health insurance costs of self-employed
individuals 6.0.0... 0... cece eee cece cues

2, Repeal of special rules applicable to FCC-certified sales
of broadcast properties .................0005

3. Modification of Code section 1033 ...............
4. Unearned income test for earned income tax credit ...

5. Imposition of tax on U.S. citizens who relinquish
citizenship... 0.0... cece cee eee eee