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

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,

JCX-64-98 https://permanent.access.gpo.gov/lps64486/x-64-98.htm

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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.

Year Present law earnings limit

1998 $14,500

1999 $15,500

2000 $17,000

2001 $25,000

2002 $30,000

2003 $31,231

2004 $32,463

2005 $33,806

2006 $35,149

2007 $36,604

2008 $37,948

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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:

Year Proposed earnings limit

1998 $14,500

1999 $17,000

2000 $18,500

2001 $26,000

2002 $30,000

2003 $31,300

2004 $34,000

2005 $35,400

2006 $36,800

2007 $38,350

2008 $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.

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