H. R. 2491—923
ment to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provision
of the Internal Revenue Code of 1986.
SEC. 13201. EARNED INCOME CREDIT DENIED TO INDIVIDUALS NOT
AUTHORIZED TO BE EMPLOYED IN THE UNITED STATES.
(a) IN
GENERAL.—Section 32(c)(1) (relating to individuals
eligible to claim the earned income credit) is amended by adding
at the end the following new subparagraph:
‘‘(F) IDENTIFICATION NUMBER REQUIREMENT.—The term
‘eligible individual’ does not include any individual who
does not include on the return of tax for the taxable year—
‘‘(i) such individual’s taxpayer identification num-
ber, and
‘‘(ii) if the individual is married (within the mean-
ing of section 7703), the taxpayer identification number
of such individual’s spouse.’’.
(b) SPECIAL IDENTIFICATION NUMBER.—Section 32 is amended
by adding at the end the following new subsection:
‘‘(l) IDENTIFICATION NUMBERS.—Solely for purposes of sub-
sections (c)(1)(F) and (c)(3)(D), a taxpayer identification number
means a social security number issued to an individual by the
Social Security Administration (other than a social security number
issued pursuant to clause (II) (or that portion of clause (III) that
relates to clause (II)) of section 205(c)(2)(B)(i) of the Social Security
Act).’’.
(c) EXTENSION OF PROCEDURES APPLICABLE TO MATHEMATICAL
OR CLERICAL ERRORS.—Section 6213(g)(2) (relating to the definition
of mathematical or clerical errors) is amended by striking ‘‘and’’
at the end of subparagraph (D), by striking the period at the
end of subparagraph (E) and inserting a comma, and by inserting
after subparagraph (E) the following new subparagraphs:
‘‘(F) an omission of a correct taxpayer identification
number required under section 32 (relating to the earned
income credit) to be included on a return, and
‘‘(G) an entry on a return claiming the credit under
section 32 with respect to net earnings from self-employ-
ment described in section 32(c)(2)(A) to the extent the
tax imposed by section 1401 (relating to self-employment
tax) on such net earnings has not been paid.’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1995.
SEC. 13202. REPEAL OF EARNED INCOME CREDIT FOR INDIVIDUALS
WITHOUT CHILDREN.
(a) IN GENERAL.—Subparagraph (A) of section 32(c)(1) (defining
eligible individual) is amended to read as follows:
‘‘(A) IN GENERAL.—The term ‘eligible individual’ means
any individual who has a qualifying child for the taxable
year.’’.
(b) CONFORMING AMENDMENTS.—Each of the tables contained
in paragraphs (1) and (2) of section 32(b) are amended by striking
the items relating to no qualifying children.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1995.
H. R. 2491—924
SEC. 13203. MODIFICATION OF EARNED INCOME CREDIT AMOUNT AND
PHASEOUT.
(a) MODIFICATION OF PHASEOUT.—Subparagraph (B) of section
32(a)(2) is amended to read as follows:
‘‘(B) the sum of—
‘‘(i) the initial phaseout percentage of so much
of the adjusted gross income (or, if greater, the earned
income) of the taxpayer for the taxable year as exceeds
the initial phaseout amount but does not exceed the
final phaseout amount, plus
‘‘(ii) the final phaseout percentage of so much of
the adjusted gross income (or, if greater, the earned
income) of the taxpayer for the taxable year as exceeds
the final phaseout amount.’’
(b) PERCENTAGES AND AMOUNTS.—
(1) IN GENERAL.—Subsection (b) of section 32, as amended
by section 1102(b), is amended to read as follows:
‘‘(b) PERCENTAGES AND AMOUNTS.—
‘‘(1) PERCENTAGES.—The credit percentage, the initial
phaseout percentage, and the final phaseout percentage shall
be determined as follows:
‘‘In the case of an eligible in-
dividual with:
The credit per-
centage is:
The initial
phaseout per-
centage is:
The final
phaseout per-
centage is:
1 qualifying child .............
15.98
2 or more qualifying chil-
dren ...............................
21.06
‘‘(2) AMOUNTS.—The earned income amount, the initial
phaseout amount, and the final phaseout amount shall be deter-
mined as follows:
‘‘In the case of an eligible in-
dividual with:
The earned in-
come amount
is:
The initial
phaseout
amount is:
The final
phaseout
amount is:
1 qualifying child .............
$6,340
$11,630
$14,850
2 or more qualifying chil-
dren ...............................
$8,910
$11,630
$17,750’’.
(2) INCREASE IN CREDIT FOR LOWER-INCOME FAMILIES HAV-
ING 2 OR MORE QUALIFYING CHILDREN.—Subsection (d) of section
32 is amended to read as follows:
‘‘(d) INCREASE IN CREDIT FOR LOWER-INCOME FAMILIES HAVING
2 OR MORE QUALIFYING CHILDREN.—
‘‘(1) IN GENERAL.—If an eligible individual has 2 or more
qualifying children, for purposes of applying paragraphs (1)
and (2)(A) of subsection (a)—
‘‘(A) the amount of the taxpayer’s earned income shall
be treated as being equal to 10⁄9 of such income (determined
without regard to this paragraph), and
H. R. 2491—925
‘‘(B) the earned income amount shall be treated as
being equal to 10⁄9 of such amount (determined without
regard to this paragraph).
‘‘(2) PHASEOUT OF BENEFIT.—If the applicable income of
the taxpayer for the taxable year exceeds $14,000 ($17,000
in the case of a joint return), the amount of each increase
under paragraph (1) shall be reduced (but not below zero)
by an amount which bears the same ratio to such increase
(determined without regard to this subparagraph) as such
excess bears to $4,000.
‘‘(3) APPLICABLE INCOME.—For purposes of this subsection,
the term ‘applicable income’ means adjusted gross income or,
if greater, earned income.’’
(3) CONFORMING AMENDMENTS.—
(A) Subsection (j) of section 32 is amended—
(i) by striking ‘‘subsection (b)(2)(A)’’ and inserting
‘‘subsection (b)(2) or (d)’’,
(ii) by striking ‘‘1994’’ and inserting ‘‘1996’’, and
(iii) by striking ‘‘1993’’ and inserting ‘‘1995’’.
(B) Subsection (e) of section 32 is amended to read
as follows:
‘‘(e) OTHER SPECIAL RULES.—
‘‘(1) MARRIED INDIVIDUALS.—In the case of an individual
who is married (within the meaning of section 7703), this
section shall apply only if a joint return is filed for the taxable
year.
‘‘(2) TAXABLE YEAR MUST BE FULL TAXABLE YEAR.—Except
in the case of a taxable year closed by reason of the death
of an individual, no credit shall be allowable under this section
in the case of a taxable year covering a period of less than
12 months.’’
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1995.
SEC. 13204. RULES RELATING TO DENIAL OF EARNED INCOME CREDIT
ON BASIS OF DISQUALIFIED INCOME.
(a) DEFINITION
OF DISQUALIFIED INCOME.—Paragraph (2) of
section 32(i) (defining disqualified income) is amended by striking
‘‘and’’ at the end of subparagraph (B), by striking the period at
the end of subparagraph (C) and inserting ‘‘, and’’, and by adding
at the end the following new subparagraph:
‘‘(D) the excess (if any) of—
‘‘(i) the aggregate income from all passive activities
for the taxable year (determined without regard to
any amount described in a preceding subparagraph),
over
‘‘(ii) the aggregate losses from all passive activities
for the taxable year (as so determined).
For purposes of subparagraph (D), the term ‘passive activity’
has the meaning given such term by section 469.’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1995.
SEC. 13205. MODIFICATION OF ADJUSTED GROSS INCOME DEFINITION
FOR EARNED INCOME CREDIT.
(a) IN GENERAL.—Subsections (a)(2), (c)(1)(C), (d), and (f)(2)(B)
of section 32, as amended by the preceding sections of this subtitle,
H. R. 2491—926
are each amended by striking ‘‘adjusted gross income’’ each place
it appears and inserting ‘‘modified adjusted gross income’’.
(b) MODIFIED ADJUSTED GROSS INCOME DEFINED.—Section 32(c)
(relating to definitions and special rules) is amended by adding
at the end the following new paragraph:
‘‘(5) MODIFIED ADJUSTED GROSS INCOME.—
‘‘(A) IN GENERAL.—The term ‘modified adjusted gross
income’ means adjusted gross income—
‘‘(i) increased by the sum of the amounts described
in subparagraph (B), and
‘‘(ii) determined without regard to—
‘‘(I) the amounts described in subparagraph
(C), or
‘‘(II) the deduction allowed under section 172.
‘‘(B) NONTAXABLE
INCOME
TAKEN
INTO
ACCOUNT.—
Amounts described in this subparagraph are—
‘‘(i) social security benefits (as defined in section
86(d)) received by the taxpayer during the taxable
year to the extent not included in gross income,
‘‘(ii) amounts which—
‘‘(I) are received during the taxable year by
(or on behalf of) a spouse pursuant to a divorce
or separation instrument (as defined in section
71(b)(2)), and
‘‘(II) under the terms of the instrument are
fixed as payable for the support of the children
of the payor spouse (as determined under section
71(c)),
but only to the extent such amounts exceed $6,000,
‘‘(iii) interest received or accrued during the tax-
able year which is exempt from tax imposed by this
chapter, and
‘‘(iv) amounts received as a pension or annuity,
and any distributions or payments received from an
individual retirement plan, by the taxpayer during the
taxable year to the extent not included in gross income.
Clause (iv) shall not include any amount which is not
includible in gross income by reason of section 402(c),
403(a)(4), 403(b)(8), 408(d) (3), (4), or (5), or 457(e)(10).
‘‘(C) CERTAIN AMOUNTS DISREGARDED.—An amount is
described in this subparagraph if it is—
‘‘(i) the amount of losses from sales or exchanges
of capital assets in excess of gains from such sales
or exchanges to the extent such amount does not exceed
the amount under section 1211(b)(1),
‘‘(ii) the net loss from the carrying on of trades
or businesses, computed separately with respect to—
‘‘(I) trades or businesses (other than farming)
conducted as sole proprietorships,
‘‘(II) trades or businesses of farming conducted
as sole proprietorships, and
‘‘(III) other trades or business,
‘‘(iii) the net loss from estates and trusts, and
‘‘(iv) the excess (if any) of amounts described in
subsection (i)(2)(C)(ii) over the amounts described in
subsection (i)(2)(C)(i) (relating to nonbusiness rents
and royalties).
H. R. 2491—927
For purposes of clause (ii), there shall not be taken into
account items which are attributable to a trade or business
which consists of the performance of services by the tax-
payer as an employee.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1995.
SEC. 13206. PROVISIONS TO IMPROVE TAX COMPLIANCE.
(a) INCREASE IN PENALTIES FOR RETURN PREPARERS.—
(1) UNDERSTATEMENT PENALTY.—Section 6694 (relating to
understatement of income tax liability by income tax return
preparer) is amended—
(A) by striking ‘‘$250’’ in subsection (a) and inserting
‘‘$500’’, and
(B) by striking ‘‘$1,000’’ in subsection (b) and inserting
‘‘$2,000’’.
(2) OTHER ASSESSABLE PENALTIES.—Section 6695 (relating
to other assessable penalties) is amended—
(A) by striking ‘‘$50’’ and ‘‘$25,000’’ in subsections (a),
(b), (c), (d), and (e) and inserting ‘‘$100’’ and ‘‘$50,000’’,
respectively, and
(B) by striking ‘‘$500’’ in subsection (f) and inserting
‘‘$1,000’’.
(b) AIDING AND ABETTING PENALTY.—Section 6701(b) (relating
to amount of penalty) is amended—
(1) by striking ‘‘$1,000’’ in paragraph (1) and inserting
‘‘2,000’’, and
(2) by striking ‘‘10,000’’ in paragraph (2) and inserting
‘‘20,000’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to penalties with respect to taxable years beginning
after December 31, 1995.
Speaker of the House of Representatives.
Vice President of the United States and
President of the Senate.