DESCRIPTION OF THE

"TAX TECHNICAL CORRECTIONS ACT OF 2002”

Prepared by the Staff

of the

JOINT COMMITTEE ON TAXATION

November 13, 2002

JCX-105-02
i

CONTENTS

Page

INTRODUCTION .......................................................................................................................... 1

TAX TECHNICAL CORRECTIONS............................................................................................ 2

Amendments to the the Job Creation and Worker Assistance Act of 2002................................ 2

Amendments to the Economic Growth and Tax Relief Reconciliation Act of 2001.................. 4

Amendment to the Victims of Terrorism Tax Relief Act of 2001.............................................. 4

Amendment to the Community Renewal Tax Relief Act of 2000.............................................. 5

Amendments to the Taxpayer Relief Act of 1997 ...................................................................... 5

Amendments to other Acts.......................................................................................................... 5

Clerical amendments................................................................................................................... 6
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INTRODUCTION

This document,1 prepared by the staff of the Joint Committee on Taxation, provides a 

description of the "Tax Technical Corrections Act of 2002.” The bill was introduced on 

November 13, 2002, as H.R. 5713 in the House of Representatives and S. 3153 in the Senate.

 

1

 This document may be cited as follows: Joint Committee on Taxation, Description of 

the "Tax Technical Corrections Act of 2002” (JCX-105-02), November 13, 2002.
2

TAX TECHNICAL CORRECTIONS

Except as otherwise provided, the technical corrections contained in the bill generally are 

effective as if included in the originally enacted related legislation.

Amendments to the the Job Creation and Worker Assistance Act of 2002

Bonus depreciation.-- Section 101 of the Job Creation and Worker Assistance Act of 

2002 provides generally for thirty-percent additional first-year depreciation, and provides a 

binding contract rule in determining property that qualifies for it. The requirements that must be 

satisfied in order for property to qualify include that (1) the original use of the property must 

commence with the taxpayer on or after September 11, 2001, (2) the taxpayer must purchase the 

property after September 10, 2001 and before September 11, 2004, and (3) no binding written 

contract for the acquisition of the property is in effect before September 11, 2001. The Act did 

not specifically require that in sale-leaseback transactions, the property is required to qualify for 

bonus depreciation in the hands of any person, including a lessee. In addition, the Act provides a 

special rule in the case of certain leased property. In the case of any property that is originally 

placed in service by a person and that is sold to the taxpayer and leased back to such person by 

the taxpayer within three months after the date that the property was placed in service, the 

property would be treated as originally placed in service by the taxpayer not earlier than the date 

that the property is used under the leaseback. The Act did not specifically address the 

syndication of a lease by the lessor. 

The provision clarifies that property qualifying for additional first-year depreciation does 

not include any property if a written binding contract for the acquisition (or in the case of 

property manufactured, constructed, or produced for the taxpayer's own use, for the manufacture, 

construction, or production of such property) of the property by any person was in effect before 

September 11, 2001. In addition, the provision provides that if property is originally placed in 

service by a lessor (including by operation of section 168(k)(2)(D)(i)), such property is sold 

within three months after the date that the property was placed in service, and the user of such 

property does not change, then the property is treated as originally placed in service by the 

taxpayer not earlier than the date of such sale. 

Five-year carryback of net operating losses ("NOLs").-- Section 102 of the Job 

Creation and Worker Assistance Act of 2002 temporarily extends the NOL carryback period to 

five years (from two years, or three years in certain cases) for NOLs arising in taxable years 

ending in 2001 and 2002. The Act was enacted in March 2002, after some taxpayers had filed 

returns for 2001. 

The provision: (1) clarifies that only the NOLs arising in the taxable years ending in 

2001 and 2002 qualify for the 5-year period, and (2) provides that any election to forego any 

carrybacks of NOLs arising in 2001 or 2002 can be revoked prior to November 1, 2002. The 

provision also allows taxpayers until November 1, 2002, to use the tentative carryback 

adjustment procedures of section 6411 for NOLs arising in 2001 and 2002 (without regard to the 

12-month limitation in section 6411). The corrections are consistent with the April 15, 2002, 

letter sent by the Chairman and Ranking Member of the House Ways and Means Committee and 
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Senate Finance Committee, as well as the guidance issued by the IRS pursuant to the 

Congressional letter (Rev. Proc. 2002-40, 2002-23 I.R.B. 1, May 22, 2002).

The provision also makes several clerical changes to the NOL provisions relating to the 

alternative minimum tax.

New York Liberty Zone bonus depreciation.-- Section 301 of the Job Creation and 

Worker Assistance Act of 2002 provides tax benefits for the area of New York City damaged in 

terrorist attacks on September 11, 2001 (an area defined in the provision and named the New 

York Liberty Zone). Under these rules, an additional first-year depreciation deduction is allowed 

equal to 30 percent of the adjusted basis of qualified New York Liberty Zone ("Liberty Zone") 

property. A taxpayer is allowed to elect out of the additional first-year depreciation for any class 

of property for any taxable year. In addition, the Act provides a special rule in the case of certain 

leased property. In the case of any property that is originally placed in service by a person and 

that is sold to the taxpayer and leased back to such person by the taxpayer within three months 

after the date that the property was placed in service, the property would be treated as originally 

placed in service by the taxpayer not earlier than the date that the property is used under the 

leaseback. The Act did not specifically address the syndication of a lease by the lessor.

The provision clarifies that Liberty Zone property qualifying for additional first-year 

depreciation does not include any property if a written binding contract for the acquisition (or in 

the case of property manufactured, constructed, or produced for the taxpayers own use, for the 

manufacture, construction, or production of such property) of the property by any person was in 

effect before September 11, 2001. In addition, the provision provides that if property is 

originally placed in service by a lessor (including by operation of section 168(k)(2)(D)(i)), such 

property is sold (or fraction thereof) within three months after the date that the property was 

placed in service, and the user of such property does not change, then the property is treated as 

originally placed in service by the taxpayer not earlier than the date of such sale.

New York Liberty Zone expensing.-- Section 301 of the Job Creation and Worker 

Assistance Act of 2002 increases the amount a taxpayer may expense under section 179 to the 

lesser of $35,000 or the amount of Liberty Zone property placed in service for the year. In 

addition, section 301(a) of the Act states that if property qualifies for both the general additional 

first-year depreciation and Liberty Zone additional first-year depreciation, it is deemed to be 

eligible for the general additional first-year depreciation and is not considered Liberty Zone 

property (i.e., only one 30-percent additional first-year depreciation deduction is allowed). 

Because only Liberty Zone property is eligible for the increased section 179 expensing amount, 

this rule has the unintended consequence of denying the increased section 179 expensing to 

Liberty Zone property. The provision corrects this unintended result (such that qualifying 

Liberty Zone property qualifies for both the 30-percent additional first-year depreciation and the 

additional section 179 expensing). 

Exclusion for employer-provided adoption assistance.--The provision corrects an 

incorrect reference in a technical correction to a provision relating to the exclusion for employerprovided adoption assistance.
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Interest rate for defined benefit plan funding requirements.--Section 405(c) of the 

Job Creation and Worker Assistance Act of 2002 increases the interest rate used in determining 

the amount of unfunded vested benefits for PBGC variable rate premium purposes from 85 

percent to 100 percent of the interest rate on 30-year Treasury securities for the month preceding 

the month in which the applicable plan year begins. The provision makes conforming changes 

so that this rule applies for purposes of notices and reporting required under Title IV of ERISA 

with respect to underfunded plans.

Amendments to the Economic Growth and Tax Relief Reconciliation Act of 2001

Coverdell education savings accounts.--The provision corrects the application of a 

conforming change to the rule coordinating Coverdell education savings accounts with Hope and 

Lifetime Learning credits and qualified tuition programs. The conforming change was made in 

connection with the expansion of Coverdell education savings accounts to elementary and 

secondary education expenses in section 401 of the Economic Growth and Tax Relief 

Reconciliation Act of 2001.

Rounding rule for retirement plan benefit and contribution limits.--Section 611 of 

the Economic Growth and Tax Relief Reconciliation Act of 2001 increases the dollar limits on 

qualified retirement plan benefits and contributions under Code section 415, and adds a new 

rounding rule for cost-of-living adjustments to the dollar limit on annual additions to defined 

contribution plans. This new rounding rule is in addition to a pre-existing rounding rule that 

applies to benefits payable under defined benefit plans. The provision clarifies that the preexisting rounding rule applies for purposes of other Code provisions that refer to Code section 

415 and do not contain a specific rounding rule.

SIMPLE plan contributions for domestic or similar workers.-- Section 637 of the 

Economic Growth and Tax Relief Reconciliation Act of 2001 provides an exception to the 

application of the excise tax on nondeductible retirement plan contributions in the case of 

contributions to a SIMPLE IRA or SIMPLE section 401(k) plan that are nondeductible solely 

because they are not made in connection with a trade or business of the employer (e.g., 

contributions on behalf of a domestic worker). Section 637 of that Act did not specifically 

modify the present-law requirement that compensation for purposes of determining contributions 

to a SIMPLE plan must be wages subject to income tax withholding, even though wages paid to 

domestic workers are not subject to income tax withholding. The provision revises the definition 

of compensation for purposes of determining contributions to a SIMPLE plan to include wages 

paid to domestic workers, even though such amounts are not subject to income tax withholding.

Amendment to the Victims of Terrorism Tax Relief Act of 2001

Disclosure of return information in connection with terrorist incident.--Section 201 

of the Victims of Terrorism Tax Relief Act of 2001 permits the IRS to disclose return 

information (other than taxpayer return information) to law enforcement agencies engaged in the 

response to or investigation of any terrorist incident, threat, or activity (sec. 6103(i)(7)(A) of the 

Code). If the taxpayer's identity (name, address, and taxpayer identification number) was 

provided by the taxpayer or his representative, for example, on a tax return, that information is 
5

taxpayer return information. As a result, the IRS could not identify the person about whom 

information is being submitted because the identity would be taxpayer return information.

The provision clarifies Code section 6103(i)(7)(A) to permit the disclosure of taxpayer 

identity in a manner similar to 6103(i)(7)(B)(iv), which permits the disclosure of identity to 

intelligence agencies as part of the information available to such agencies regarding terrorist 

activities.

Amendment to the Community Renewal Tax Relief Act of 2000

Tax treatment of options and securities futures contracts.-- The provision clarifies 

that the Secretary of the Treasury has the authority to prescribe regulations regarding the status 

of an option or a contract the value of which is determined directly or indirectly by reference to 

an index which becomes (or ceases to be) a narrow-based security index (as defined in Code 

section 1256(g)(6)). This authority includes, but is not limited to, regulations that provide for 

preserving the status of such an option or contract as appropriate.

Amendments to the Taxpayer Relief Act of 1997

Constructive sale exception.--Section 1001(a) of the Taxpayer Relief Act of 1997 

provides an exception from constructive sale treatment for any transaction that is closed before 

the end of the thirtieth day after the close of the taxable year in which the transaction was entered 

into, provided certain requirements are met after closing the transaction (Code section 

1259(c)(3)). In the case of positions that are reestablished following a closed transaction but 

prior to satisfying the requirements for the exception from constructive sale treatment, the 

exception applies in a similar manner if the reestablished position itself is closed and similar 

requirements are met after closing the reestablished position. The provision clarifies that the 

exception applies in the same manner to all closed transactions, including reestablished positions 

that are closed.

Airline ticket tax.--Beginning with calendar year 2003, the domestic flight segment 

portion of the airline ticket tax is adjusted for inflation annually. The provision clarifies that, in 

the case of amounts paid for transportation before the beginning of the year in which the 

transportation is to occur, the rate of tax is the rate in effect for the calendar year in which the 

amount is paid. The provision is effective for segments beginning after December 31, 2002.

Amendments to other Acts

Taxpayer identification numbers of individuals eligible for the earned income 

credit.-- Section 451 of the Personal Responsibility and Work Opportunity Reconciliation Act of 

1996 was intended to deny the earned income credit (EIC) to individuals who are not authorized 

to work in the United States. Specifically, each individual (and, if married, the individual’s 

spouse) and each qualified child is required to include a taxpayer identification number on the 

tax return. For these purposes, the taxpayer identification numbers are social security numbers 

issued under a specific section of the Social Security Act. The reference to the Social Security 

Act is incorrect and does not limit eligibility for the EIC to individuals authorized to work in the 

United States. The provision corrects the reference to the Social Security Act to limit the EIC to 
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individuals authorized to work in the United States. The provision is effective for taxable years 

beginning after the date of enactment.

Clerical amendments

The bill makes a number of clerical and typographical amendments to the Code.