I
107TH CONGRESS
1ST SESSION
H. R. 2529
To amend the Internal Revenue Code of 1986 to provide a revenue-neutral
simplification of the individual income tax.
IN THE HOUSE OF REPRESENTATIVES
JULY 17, 2001
Mr. NEAL of Massachusetts (for himself and Mr. MATSUI) introduced the
following bill; which was referred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to provide
a revenue-neutral simplification of the individual income tax.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Individual Tax Simplification Act of 2001’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
(c) TABLE OF CONTENTS.—
Sec. 1. Short title.
TITLE I—SIMPLIFICATION RELATING TO NONREFUNDABLE
PERSONAL CREDITS
Sec. 101. Repeal of interaction with alternative minimum tax.
Sec. 102. Uniform phaseout of credits for adoption, children, and education.
TITLE II—SIMPLIFICATION OF CAPITAL GAINS TAX
Sec. 201. Simplification of capital gains tax.
TITLE III—REPEAL OF CERTAIN HIDDEN MARGINAL RATE
INCREASES; REPEAL OF INDIVIDUAL MINIMUM TAX
Subtitle A—Repeals
Sec. 301. Repeal of overall limitation on itemized deductions.
Sec. 302. Repeal of phaseout of personal exemptions.
Sec. 303. Repeal of alternative minimum tax on individuals.
Subtitle B—Revenue Offsets
Sec. 311. Additional income tax.
TITLE 
I—SIMPLIFICATION 
RE-
LATING TO NONREFUNDABLE
PERSONAL CREDITS
SEC. 101. REPEAL OF INTERACTION WITH ALTERNATIVE
MINIMUM TAX.
(a) GENERAL RULE.—Subsection (a) of section 26
(relating to limitation based on amount of tax) is amended
to read as follows:
‘‘(a) LIMITATION BASED ON AMOUNT OF TAX.—The
aggregate amount of credits allowed by this subpart for
the taxable year shall not exceed the tax imposed by this
chapter for the taxable year.’’
(b) CONFORMING AMENDMENT.—Paragraph (2) of
section 26(b) is amended by inserting ‘‘subsection (a)
and’’ before ‘‘paragraph (1)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 102. UNIFORM PHASEOUT OF CREDITS FOR ADOP-
TION, CHILDREN, AND EDUCATION.
(a) IN GENERAL.—Section 26 is amended by redesig-
nating subsections (b) and (c) as subsections (c) and (d),
respectively, and by inserting after subsection (a) the fol-
lowing new subsection:
‘‘(b) UNIFORM PHASEOUT OF ADOPTION EXPENSE
CREDIT, CHILD CREDIT, AND HOPE
AND LIFETIME
LEARNING CREDITS.—
‘‘(1) IN
GENERAL.—The aggregate amount
which would (but for subsection (a) and this sub-
section) be allowed as a credit under sections 23, 24,
and 25A shall be reduced (but not below zero) by 10
percent of the amount by which the taxpayer’s modi-
fied adjusted gross income exceeds the threshold
amount. For purposes of the preceding sentence, the
term ‘modified adjusted gross income’ means ad-
justed gross income increased by any amount ex-
cluded from gross income under section 911, 931, or
933.
‘‘(2) THRESHOLD AMOUNT.—For purposes of
paragraph (1), the term ‘threshold amount’ means—
‘‘(A) $110,000 in the case of a joint re-
turn,
‘‘(B) $75,000 in the case of an individual
who is not married, and
‘‘(C) $55,000 in the case of a married in-
dividual filing a separate return.
For purposes of this paragraph, marital status shall
be determined under section 7703.’’
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 23(b) is amended
to read as follows:
‘‘(2) LIMITATION BASED ON ADJUSTED GROSS IN-
COME.—
‘‘For limitation based on adjusted gross income,
see section 26(b).’’.
(2) Subsection (c) of section 23 is amended—
(A) by inserting ‘‘(as reduced under sec-
tion 26(b))’’ before ‘‘exceeds’’, and
(B) by adding at the end the following new
sentence: ‘‘For purposes of this subsection, the
reduction under section 26(b) shall first be ap-
plied to the credits under sections 24 and 25A
and then to the credit under this section.’’
(3) Subsection (b) of section 24 is amended to
read as follows:
‘‘(b) LIMITATION BASED ON ADJUSTED GROSS.—
‘‘For limitation based on adjusted gross income,
see section 26(b).’’.
(4) Subsection (d) of section 25A is amended to
read as follows:
‘‘(d) LIMITATION BASED ON ADJUSTED GROSS.—
‘‘For limitation based on adjusted gross income,
see section 26(b).’’.
(5) Subsection (h) of section 25A is amended to
read as follows:
‘‘(h) INFLATION ADJUSTMENTS.—
‘‘(1) IN GENERAL.—In the case of a taxable
year beginning after 2002, each of the $1,000
amounts under subsection (b)(1) shall be increased
by an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar
year in which the taxable year begins, deter-
mined by substituting ‘calendar year 2001’ for
‘calendar year 1992’ in subparagraph (B)
thereof.
‘‘(2) ROUNDING.—If any amount as adjusted
under paragraph (1) is not a multiple of $100, such
amount shall be rounded to the next lowest multiple
of $100.’’
(6) The section heading for section 26 is
amended by inserting before the period ‘‘; PHASE-
OUT OF CERTAIN CREDITS BASED ON INCOME;
DEFINITIONS’’.
(7) The item relating to section 26 in the table
of sections for subpart A of part IV of subchapter
A of chapter 1 is amended by inserting before the
period ‘‘; phaseout of certain credits based on in-
come; definitions’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
TITLE II—SIMPLIFICATION OF
CAPITAL GAINS TAX
SEC. 201. SIMPLIFICATION OF CAPITAL GAINS TAX.
(a) IN GENERAL.—Part I of subchapter P of chapter
1 (relating to treatment of capital gains) is amended by
adding at the end the following new section:
‘‘SEC. 1203. CAPITAL GAINS DEDUCTION.
‘‘If for any taxable year a taxpayer other than a cor-
poration has a net capital gain, 38 percent of such gain
shall be a deduction from gross income.’’.
(b) DEDUCTION ALLOWABLE WHETHER
OR NOT
TAXPAYER ITEMIZES OTHER DEDUCTIONS.—
(1) Subsection (b) of section 63 is amended by
striking ‘‘and’’ at the end of paragraph (1), by strik-
ing the period at the end of paragraph (2) and in-
serting ‘‘, and’’, and by adding at the end the fol-
lowing new paragraph:
‘‘(3) the deduction allowed by section 1203.’’.
(2) Subsection (d) of section 63 is amended by
striking ‘‘and’’ at the end of paragraph (1), by strik-
ing the period at the end of paragraph (2) and in-
serting ‘‘, and’’, and by adding at the end the fol-
lowing new paragraph:
‘‘(3) the deduction allowed by section 1203.’’.
(c) TREATMENT OF COLLECTIBLES.—
(1) IN GENERAL.—Section 1222 is amended by
inserting after paragraph (11) the following new
paragraph:
‘‘(12) SPECIAL RULE FOR COLLECTIBLES.—
‘‘(A) IN GENERAL.—Any gain or loss from
the sale or exchange of a collectible shall be
treated as a short-term capital gain or loss (as
the case may be), without regard to the period
such asset was held. The preceding sentence
shall apply only to the extent the gain or loss
is taken into account in computing taxable in-
come.
‘‘(B) TREATMENT OF CERTAIN SALES OF
INTERESTS IN PARTNERSHIPS, ETC.—For pur-
poses of subparagraph (A), any gain from the
sale or exchange of an interest in a partnership,
S corporation, or trust which is attributable to
unrealized appreciation in the value of collect-
ibles held by such entity shall be treated as gain
from the sale or exchange of a collectible. Rules
similar to the rules of section 751(f) shall apply
for purposes of the preceding sentence.
‘‘(C) COLLECTIBLE.—For purposes of this
paragraph, the term ‘collectible’ means any cap-
ital asset which is a collectible (as defined in
section 408(m) without regard to paragraph (3)
thereof).’’.
(2) 
CHARITABLE
DEDUCTION
NOT
AF-
FECTED.—
(A) Paragraph (1) of section 170(e) is
amended by adding at the end thereof the fol-
lowing new sentence: ‘‘For purposes of this
paragraph, section 1222 shall be applied with-
out regard to paragraph (12) thereof (relating
to special rule for collectibles).’’.
(B) Clause (iv) of section 170(b)(1)(C) is
amended by inserting before the period at the
end thereof the following: ‘‘and section 1222
shall be applied without regard to paragraph
(12) thereof (relating to special rule for collect-
ibles)’’.
(d) TECHNICAL AND CONFORMING CHANGES.—
(1) Section 1 is amended by striking subsection
(h).
(2) Subparagraph (E) of section 163(d)(4) is
amended to read as follows:
‘‘(E) COORDINATION WITH CAPITAL GAINS
DEDUCTION.—The net capital gain taken into
account under section 1203 for any taxable
year shall be reduced (but not below zero) by
the amount which the taxpayer takes into ac-
count as investment income under subpara-
graph (B)(iii) for such year.’’.
(3) Paragraph (1) of section 170(e) is amended
by striking ‘‘the amount of gain’’ in the material fol-
lowing subparagraph (B)(ii) and inserting ‘‘62 per-
cent (100 percent in the case of a corporation) of
the amount of gain’’.
(4) Subparagraph (B) of section 172(d)(2) is
amended to read as follows:
‘‘(B) the exclusion under section 1202 and
the deduction under section 1203 shall not be
allowed.’’.
(5) The last sentence of section 453A(c)(3) is
amended by striking all that follows ‘‘long-term cap-
ital gain,’’ and inserting ‘‘the maximum rate on net
capital gain under section 1201 or the deduction
under section 1203 (whichever is appropriate) shall
be taken into account.’’.
(6)(A) Section 641(c)(2)(A) is amended by
striking ‘‘Except as provided in section 1(h), the’’
and inserting ‘‘The’’.
(B) Section 641(c)(2)(C) is amended by insert-
ing after clause (iii) the following new clause:
‘‘(iv) The deduction under section
1203.’’.
(7) Paragraph (4) of section 642(c) is amended
to read as follows:
‘‘(4) ADJUSTMENTS.—To the extent that the
amount otherwise allowable as a deduction under
this subsection consists of gain from the sale or ex-
(11) Paragraph (4) of section 691(c) is amend-
ed by striking ‘‘1(h),’’ and by inserting ‘‘1203,’’
after ‘‘1202,’’.
(12) The second sentence of paragraph (2) of
section 871(a) is amended by striking ‘‘section
1202’’ and inserting ‘‘sections 1202 and 1203’’.
(13)(A) Paragraph (2) of section 904(b) is
amended by striking subparagraphs (A) and (C), by
redesignating subparagraph (B) as subparagraph
(A), and by inserting after subparagraph (A) (as so
redesignated) the following new subparagraph:
‘‘(B) OTHER TAXPAYERS.—In the case of
a taxpayer other than a corporation, taxable in-
come from sources outside the United States
shall include gain from the sale or exchange of
capital assets only to the extent of foreign
source capital gain net income.’’.
(B) Subparagraph (A) of section 904(b)(2), as
so redesignated, is amended—
(i) by striking all that precedes clause (i)
and inserting the following:
‘‘(A) CORPORATIONS.—In the case of a
corporation—’’, and
(ii) by striking in clause (i) ‘‘in lieu of ap-
plying subparagraph (A),’’.
(C) Paragraph (3) of section 904(b) is amended
by striking subparagraphs (D) and (E) and inserting
the following new subparagraph:
‘‘(D) RATE DIFFERENTIAL PORTION.—The
rate differential portion of foreign source net
capital gain, net capital gain, or the excess of
net capital gain from sources within the United
States over net capital gain, as the case may
be, is the same proportion of such amount as
the excess of the highest rate of tax specified in
section 11(b) over the alternative rate of tax
under section 1201(a) bears to the highest rate
of tax specified in section 11(b).’’.
(14) Paragraph (1) of section 1402(i) is amend-
ed by inserting ‘‘, and the deduction provided by sec-
tion 1203 shall not apply’’ before the period at the
end thereof.
(15) Paragraph (1) of section 1445(e) is
amended by striking ‘‘20 percent’’ and inserting
‘‘24.5 percent’’.
(16)(A) 
The 
second 
sentence 
of 
section
7518(g)(6)(A) is amended—
(i) by striking ‘‘during a taxable year to
which section 1(h) or 1201(a) applies’’, and
(ii) by striking ‘‘20 percent’’ and inserting
‘‘24.5 percent’’.
(B) 
The 
second 
sentence 
of 
section
607(h)(6)(A) of the Merchant Marine Act, 1936, is
amended—
(i) by striking ‘‘during a taxable year to
which section 1(h) or 1201(a) of such Code ap-
plies’’, and
(ii) by striking ‘‘20 percent’’ and inserting
‘‘24.5 percent’’.
(e) CLERICAL AMENDMENT.—The table of sections
for part I of subchapter P of chapter 1 is amended by
adding at the end the following new item:
‘‘Sec. 1203. Capital gains deduction.’’.
(f) EFFECTIVE DATES.—
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by
this section shall apply to taxable years beginning
after December 31, 2001.
(2) WITHHOLDING.—The amendments made by
subsection (d)(15) shall apply only to amounts paid
after December 31, 2001.
(3) REPEAL OF ELECTION.—Section 311 of the
Taxpayer Relief Act of 1997 is amended by striking
subsection (e).
(4) COORDINATION
WITH
PRIOR
TRANSITION
RULE.—Any amount treated as long-term capital
gain by reason of paragraph (3) of section 1122(h)
of the Tax Reform Act of 1986 shall not be taken
into account for purposes of applying section 1203
of the Internal Revenue Code of 1986 (as added by
this section).
TITLE III—REPEAL OF CERTAIN
HIDDEN MARGINAL RATE IN-
CREASES; REPEAL OF INDI-
VIDUAL MINIMUM TAX
Subtitle A—Repeals
SEC. 301. REPEAL OF OVERALL LIMITATION ON ITEMIZED
DEDUCTIONS.
(a) IN GENERAL.—Section 68 (relating to overall
limitation on itemized deductions) is hereby repealed.
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (A) of section 1(f)(6) is
amended by striking ‘‘section 68(b)(2)’’.
(2) Subparagraph (B) of section 773(a)(3) is
amended by striking clause (i) and by redesignating
clauses (ii), (iii), and (iv), as clauses (i), (ii), and
(iii), respectively.
(3) The table of sections for subchapter B of
chapter 1 is amended by striking the item relating
to section 68.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 302. REPEAL OF PHASEOUT OF PERSONAL EXEMP-
TIONS.
(a) IN GENERAL.—Subsection (d) of section 151 (re-
lating to allowance of deductions for personal exemptions)
is amended by striking paragraph (3) and by redesig-
nating paragraph (4) as paragraph (3).
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (6) of section 1(f) is amended—
(A) by striking ‘‘section 151(d)(4)’’ in sub-
paragraph 
(A) 
and 
inserting 
‘‘section
151(d)(3)’’, and
(B) by striking ‘‘section 151(d)(4)(A)’’ in
subparagraph 
(B) 
and 
inserting 
‘‘section
151(d)(3)’’.
(2) Paragraph (3) of section 151(d), as redesig-
nated by subsection (a), is amended to read as fol-
lows:
‘‘(3) INFLATION ADJUSTMENT.—In the case of
any taxable year beginning in a calendar year after
1989, the dollar amount contained in paragraph (1)
shall be increased by an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar
year in which the taxable year begins, by sub-
stituting ‘calendar year 1988’ for ‘calendar year
1992’ in subparagraph (B) thereof.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 303. REPEAL OF ALTERNATIVE MINIMUM TAX ON INDI-
VIDUALS.
(a) IN GENERAL.—Subsection (a) of section 55 (re-
lating to alternative minimum tax imposed) is amended
by adding at the end the following new flush sentence:
‘‘Except in the case of a corporation, no tax shall be im-
posed by this section for any taxable year beginning after
December 31, 2001, and the tentative minimum tax of any
taxpayer other than a corporation shall be zero for pur-
poses of this title.’’
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (B) of section 1(g)(7) is
amended by adding ‘‘and’’ at the end of clause (i),
by striking ‘‘, and’’ at the end of clause (ii) and in-
serting a period, and by striking clause (iii).
(2) Section 2(d) is amended by striking ‘‘sec-
tions 1 and 55’’ and inserting ‘‘section 1’’.
(3) Section 5(a) is amended by striking para-
graph (4).
(4) Subsection (d) of section 26 (as redesig-
nated by section 102) is amended by inserting before
the period ‘‘; except that such amount shall be treat-
ed as being zero in the case of a taxpayer other than
a corporation.’’
(5) Paragraph (6) of section 29(b) is amended
to read as follows:
‘‘(6) APPLICATION
WITH
OTHER
CREDITS.—
The credit allowed by subsection (a) for any taxable
year shall not exceed the regular tax for the taxable
year reduced by the sum of the credits allowable
under subpart A and section 27. In the case of a
corporation, the limitation under the preceding sen-
tence shall be reduced (but not below zero) by the
tentative minimum tax for the taxable year.’’.
(6) Paragraph (3) of section 30(b) is amended
to read as follows:
‘‘(3) APPLICATION
WITH
OTHER
CREDITS.—
The credit allowed by subsection (a) for any taxable
year shall not exceed the regular tax for the taxable
year reduced by the sum of the credits allowable
under subpart A and sections 27 and 29. In the case
of a corporation, the limitation under the preceding
sentence shall be reduced (but not below zero) by the
tentative minimum tax for the taxable year.’’.
(7) Subsection (d) of section 53(d) is amended
to read as follows:
‘‘(d) DEFINITIONS.—For purposes of this section—
‘‘(1) NET MINIMUM TAX.—The term ‘net min-
imum tax’ means the tax imposed by section 55 in-
creased by the amount of the credit not allowed
under section 29 (relating to credit for producing
fuel from a nonconventional source) solely by reason
of the application of the last sentence of section
29(b)(6), or not allowed under section 30 solely by
reason of the application of the last sentence of sec-
tion 30(b)(3).
‘‘(2) TENTATIVE
MINIMUM
TAX.—The term
‘tentative minimum tax’ has the meaning given to
such term by section 55(b); except that such tax
shall be treated as being zero in the case of a tax-
payer other than a corporation.’’.
(8)(A) Subsection (b) of section 55 (relating to
alternative minimum tax imposed) is amended to
read as follows:
‘‘(b) TENTATIVE MINIMUM TAX.—For purposes of
this part—
‘‘(1) AMOUNT OF TENTATIVE TAX.—The ten-
tative minimum tax for the taxable year is—
‘‘(A) 20 percent of so much of the alter-
native minimum taxable income for the taxable
year as exceeds the exemption amount, reduced
by
‘‘(B) the alternative minimum tax foreign
tax credit for the taxable year.
‘‘(2) ALTERNATIVE
MINIMUM
TAXABLE
IN-
COME.—The term ‘alternative minimum taxable in-
come’ means the taxable income of the taxpayer for
the taxable year—
‘‘(A) determined with the adjustments pro-
vided in section 56, and
‘‘(B) increased by the amount of the items
of tax preference described in section 57.
If a taxpayer is subject to the regular tax, such tax-
payer shall be subject to the tax imposed by this sec-
tion (and, if the regular tax is determined by ref-
erence to an amount other than taxable income, such
amount shall be treated as the taxable income of
such taxpayer for purposes of the preceding sen-
tence).’’.
(B) Subsection (d) of section 55 is amended to
read as follows:
‘‘(d) EXEMPTION AMOUNT.—For purposes of this
section—
‘‘(1) IN
GENERAL.—The term ‘exemption
amount’ means $40,000.
‘‘(2) PHASE-OUT
OF
EXEMPTION
AMOUNT.—
The exemption amount of any taxpayer shall be re-
duced (but not below zero) by an amount equal to
25 percent of the amount by which the alternative
minimum taxable income of the taxpayer exceeds
$150,000.’’.
(9)(A) Paragraph (6) of section 56(a) is
amended to read as follows:
‘‘(6) ADJUSTED BASIS.—The adjusted basis of
any property to which paragraph (1) or (5) applies
(or with respect to which there are any expenditures
to which paragraph (2) applies) shall be determined
on the basis of the treatment prescribed in para-
graph (1), (2), or (5), whichever applies.’’.
(B) Section 56 is amended by striking sub-
section (b).
(C) Subsection (c) of section 56 is amended by
striking so much of the subsection as precedes para-
graph (1), by redesignating paragraphs (1), (2), and
(3) as paragraphs (8), (9), and (10), respectively,
and moving them to the end of subsection (a).
(D) Paragraph (8) of section 56(a), as redesig-
nating by paragraph (12)(C), is amended by striking
‘‘subsection (g)’’ and inserting ‘‘subsection (c)’’.
(E) Section 56 is amended by striking sub-
section (e) and by redesignating subsections (d) and
(g) as subsections (b) and (c), respectively.
(10)(A) Section 58 is hereby repealed.
(B) Clause (i) of section 56(b)(2)(A) (as redes-
ignated by paragraph (12)(E), is amended by insert-
ing ‘‘, in the case of taxable years beginning before
January 1, 2002,’’ before ‘‘section 58’’.
(C) Subsection (h) of section 59 is amended—
(i) by striking ‘‘, 465, and 1366(d)’’ and
inserting ‘‘and 465’’, and
(ii) by striking ‘‘56, 57, and 58’’ and in-
serting ‘‘56 and 57’’.
(11)(A) Subparagraph (C) of section 59(a)(1)
is amended by striking ‘‘subparagraph (A)(i) or
(B)(i) of section 55(b)(1) (whichever applies)’’ and
inserting ‘‘section 55(b)(1)(A)’’.
(B) Paragraph (3) of section 59(a) is amended
to read as follows:
‘‘(3) PRE-CREDIT TENTATIVE MINIMUM TAX.—
For purposes of this subsection, the term ‘pre-credit
tentative minimum tax’ means the amount deter-
mined under section 55(b)(1)(A).’’.
(C) Section 59 is amended by striking sub-
section (c).
(D) Section 59 is amended by striking sub-
section (j).
(12) Paragraph (7) of section 382(l) is amend-
ed by striking ‘‘section 56(d)’’ and inserting ‘‘section
56(b)’’.
(13) Paragraph (2) of section 641(c) is amend-
ed by striking subparagraph (B) and by redesig-
nating subparagraphs (C) and (D) as subparagraphs
(B) and (C), respectively.
(14) Subsections (b) and (c) of section 666 are
each amended by striking ‘‘(other than the tax im-
posed by section 55)’’.
(15) Subsections (c)(5) and (d)(3)(B) of section
772 are each amended by striking ‘‘56, 57, and 58’’
and inserting ‘‘56 and 57’’.
(16) Sections 847 and 848(i) are each amended
by striking ‘‘section 56(g)’’ and inserting ‘‘section
56(c)’’.
(17) Sections 871(b)(1) and 877(b) are each
amended by striking ‘‘or 55’’.
(18) Subsection (a) of section 897 is amended
to read as follows:
‘‘(a) GENERAL RULE.—For purposes of this title,
gain or loss of a nonresident alien individual or a foreign
corporation from the disposition of a United States real
property interest shall be taken into account—
‘‘(1) in the case of a nonresident alien indi-
vidual, under section 871(b)(1), or
‘‘(2) in the case of a foreign corporation, under
section 882(a)(1),
as if the taxpayer were engaged in a trade or business
within the United States during the taxable year and as
if such gain or loss were effectively connected with such
trade or business.’’.
(19) Paragraph (1) of section 962(a) is amend-
ed by striking ‘‘sections 1 and 55’’ and inserting
‘‘section 1’’.
(20) Paragraph (1) of section 1397E(c) is
amended to read as follows:
‘‘(1) the regular tax liability (as defined in sec-
tion 26(b), over’’
(21) The last sentence of section 1563(a) is
amended by striking ‘‘section 55(d)(3)’’ and insert-
ing ‘‘section 55(d)(2)’’.
(22) Subparagraph (B) of section 6015(d)(2) is
amended by striking ‘‘or 55’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
(d) TRANSITIONAL RULE RELATING TO MINIMUM
TAX CREDIT.—
(1) IN GENERAL.—The pre-effective date min-
imum tax credit of a taxpayer other than a corpora-
tion shall not be allowed under section 53 of the In-
ternal Revenue Code of 1986 but shall be allowed
under this subsection.
(2) 
PRE-EFFECTIVE
DATE
MINIMUM
TAX
CREDIT.—For purposes of this subsection, the term
‘‘pre-effective date minimum tax credit’’ means the
amount determined under section 53(b) of such
Code for the first taxable year beginning after De-
cember 31, 2001.
(3) AMOUNT OF CREDIT.—
(A) IN GENERAL.—The pre-effective date
minimum tax credit of a taxpayer other than a
corporation shall be allowed ratably over the pe-
riod of 10 taxable years beginning with the first
taxable year beginning after December 31,
2001.
(B) LIMITATION.—The credit allowable by
this subsection for any taxable year shall not
exceed the regular tax liability of the taxpayer
for such taxable year reduced by the sum of the
credits allowable under subparts A, B, D, E,
and F of part IV of subchapter A of chapter 1
of the Internal Revenue Code of 1986.
(C) CARRYFORWARD.—If the credit allow-
able by this subsection exceeds the limitation
imposed by subparagraph (B), such excess shall
be carried to the succeeding taxable year and
added to the credit allowable under this sub-
section for such succeeding taxable year.
(4) ACCELERATION
OF
CREDIT
WHERE
PRE-
VIOUSLY TAXED INCOME.—
(A) IN
GENERAL.—The credit allowed
under this subsection for any taxable year shall
not be less than so much of the limitation de-
scribed in paragraph (3)(B) for the taxable year
Subtitle B—Revenue Offsets
SEC. 311. ADDITIONAL INCOME TAX.
(a) IN GENERAL.—Section 1 is amended by adding
at the end the following new subsection:
‘‘(h) ADDITIONAL INCOME TAX.—
‘‘(1) IN GENERAL.—If the adjusted gross in-
come of an individual exceeds the initial threshold
amount, the tax imposed by this section (determined
without regard to this subsection) shall be increased
by an amount equal to the sum of—
‘‘(A) the applicable rate of so much of the
adjusted gross income as exceeds the initial
threshold amount but does not exceed the sec-
ond threshold amount, and
‘‘(B) twice the applicable rate of so much
of the adjusted gross income as exceeds the sec-
ond threshold amount.
‘‘(2) APPLICABLE RATE.—For purposes of this
section, the applicable rate is the rate estimated by
the Secretary which will result in the Individual Tax
Simplification Act of 2001 being revenue neutral
over the first 10 years after its enactment.
‘‘(3) THRESHOLD AMOUNTS.—For purposes of
this subsection—
‘‘(A) INITIAL THRESHOLD AMOUNT.—The
initial threshold amount is—
‘‘(i) $120,000 in the case of a joint
return,
‘‘(ii) $90,000 in the case of an indi-
vidual who is not married, and
‘‘(iii) 1⁄2 the dollar amount applicable
under clause (i) in the case of a married
individual filing a separate return.
‘‘(B) SECOND THRESHOLD AMOUNT.—The
second threshold amount is—
‘‘(i) $150,000 in the case of a joint
return,
‘‘(ii) $112,000 in the case of an indi-
vidual who is not married, and
‘‘(iii) 1⁄2 the dollar amount applicable
under clause (i) in the case of a married
individual filing a separate return.
‘‘(C) MARITAL STATUS.—For purposes of
this paragraph, marital status shall be deter-
mined under section 7703.
‘‘(4) INFLATION ADJUSTMENT.—In the case of
any taxable year beginning in a calendar year after
2002, each dollar amount contained in paragraph
(2) shall be increased by an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under subsection (f)(3) for the calendar
year in which the taxable year begins, by sub-
stituting ‘calendar year 2001’ for ‘calendar year
1992’ in subparagraph (B) thereof.
If any increase under the preceding sentence is not
a multiple of $50, such increase shall be rounded to
the nearest multiple of $50.
‘‘(5) TAX
NOT
TO
APPLY
TO
ESTATES
AND
TRUSTS.—This subsection shall not apply to an es-
tate or trust.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 2001.
(c) SECTION 15 NOT TO APPLY.—The amendment
made by this section shall not be treated as a change in
a rate of tax for purposes of section 15 of such Code.
Æ