**DESCRIPTION OF AN AMENDMENT**

**IN THE NATURE OF A SUBSTITUTE**

**TO THE PROVISIONS CONTAINED IN**

**H.R. 4579, THE "TAXPAYER RELIEF ACT OF 1998"**

**Scheduled for a Markup by the**

**HOUSE COMMITTEE ON WAYS AND MEANS**

**On**

**September 17, 1998**

**Prepared by the Staff**

**of the**

**JOINT COMMITTEE ON TAXATION**

**September 17, 1998**

**JCX-64-98**

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**DESCRIPTION OF AN AMENDMENT IN THE NATURE OF A SUBSTITUTE TO THE PROVISIONS CONTAINED IN H.R. 4579, THE "TAXPAYER RELIEF ACT OF 1998"**

	On September 17, 1998, the House Committee on Ways and Means has scheduled amarkup of the provisions contained in H.R. 4579, the "Taxpayer Relief Act of 1998 (the Act)." A description of these provisions is contained in JCX-60-98.  The amendment in the nature of asubstitute would adopt the provisions of the Act, as modified by this document.(1)

**1.   Exceptions under Subpart F for certain active financing income**

**Description of Amendment**
	The amendment would modify the anti-abuse rules with respect to the active financingprovision of the Taxpayer Relief Act of 1998.  Under the amendment, the anti-abuse rules wouldprovide that items with respect to a transaction or series of transactions would be disregarded ifone of the principal purposes of the transaction or transactions is to qualify income or gain forthe exceptions from subpart F under the active financing provision, including any transaction or aseries of transactions a principal purpose of which is the acceleration or deferral of any item inorder to claim the benefits of these exceptions. In addition, the anti-abuse rules would providethat items of income, gain, loss or deduction of, or derived from, an entity which is not engagedin regular and continuous transactions with persons which are not related persons would bedisregarded. Moreover, items of income, gain, loss or deduction with respect to a transaction orseries of transactions would be disregarded if one of the principal purposes of the transaction ortransactions is to qualify income or gain for the exceptions under the active financing provision,including utilizing or doing business with: (1) one or more entities in order to satisfy any homecountry requirement, or (2) a special purpose entity or arrangement, including a securitization orfinancing arrangement or any similar entity or arrangement. Finally, the anti-abuse rules wouldprovide that a related person, officer, director, or employee with respect to any controlled foreigncorporation (or qualified business unit) which otherwise would be treated as a customer of suchcorporation or unit with respect to any transaction would not be treated as a customer, if aprincipal purpose of such transaction is to satisfy any requirement for these exceptions.

**2.  Increases in the social security earnings limit for individuals who have attainedretirement age**

**Present Law**

	Senior citizens age 70 and older receive full Social Security benefits regardless of theamount of earnings they have from wages or self employment.  Those between the full retirementage (currently age 65) and age 70 receive full benefits only if their earnings are lower than anearnings limit amount determined by law.  In 1998, the limit for those age 65 to 69 is $14,500. The limit is gradually raised to $30,000 by the year 2002.  After 2002, the annual exemptamounts are indexed to growth in average wages.

YearPresent law earnings limit 1998$14,5001999$15,5002000$17,0002001$25,0002002$30,0002003$31,2312004$32,4632005$33,8062006$35,1492007 $36,6042008$37,948

	Senior citizens between the age of full retirement (currently age 65) and 70 who earnmore than the earnings limit lose $1 in benefits for every $3 in wages or self-employment incomethey earn over the limit.

**Description of Proposal**

	The proposal would raise the earnings limit for those between full retirement age(currently age 65) and age 70 in calendar years 1999 - 2008, as follows:
YearProposed earnings limit1998$14,5001999$17,0002000$18,5002001$26,0002002$30,0002003$31,3002004$34,0002005$35,4002006$36,8002007$38,3502008$39,750
	Senior citizens between full retirement age (currently age 65) and 70 who earn over thegiven earnings limit for the year would continue to lose $1 in benefits for every $3 earned overthe limit.  After 2008, the annual exempt amounts would be indexed to growth in average wages.

**Effective Date**

	The proposal would be effective for the taxable years ending after 1998.

1.   This document may be cited as follows: Joint Committee on Taxation, *Description ofan Amendment in the Nature of a Substitute to the Provisions Contained in H.R. 4579, the"Taxpayer Relief Act of 1998"* (JCX-64-98), September 17, 1998.