To amend the Internal Revenue Code of 1986 to simplify the taxation of minor children.

SECTION 1. SHORT TITLE.

    This Act may be cited as ``Taxation of Minor Children Simplifcation 
Act of 2004''.

SEC. 2. TAXATION OF MINOR CHILDREN.

    (a) Application of Trust Rate Schedule to Net Unearned Income of 
Minor Children.--Subsection (g) of section 1 of the Internal Revenue 
Code of 1986 (relating to certain unearned income of minor children 
taxed as if parent's income) is amended--
            (1) by striking paragraphs (1), (3), and (5),
            (2) by redesignating paragraphs (4), (6), and (7) as 
        paragraphs (3), (4), and (5), respectively, and
            (3) by inserting before paragraph (2) the following new 
        paragraph:
            ``(1) In general.--In the case of a child to whom this 
        subsection applies, the tax imposed by this section shall be 
        the sum of--
                    ``(A) a tax computed at the rates and in the same 
                manner as if this subsection had not been enacted on 
                taxable income reduced by net unearned income, plus
                    ``(B) the excess (if any) of the tax determined 
                under subsection (e) on total taxable income over the 
                tax determined under subsection (e) on taxable income 
                reduced by net unearned income.''.
    (b) Expansion of Parental Election.--Paragraph (5) of section 1(g) 
of such Code (as redesignated under subsection (a)) is amended to read 
as follows:
            ``(5) Election to claim income of child on parent's 
        return.--
                    ``(A) In general.--If the parent of any child to 
                whom this subsection applies elects the application of 
                subparagraph (B), such child--
                            ``(i) shall be treated (other than for 
                        purposes of this paragraph)--
                                    ``(I) as having no gross income for 
                                such year, and
                                    ``(II) as not being entitled to any 
                                deductions or credits for such year, 
                                and
                            ``(ii) shall not be required to file a 
                        return under section 6012 for such year.
                    ``(B) Income included on parent's return.--In the 
                case of a parent making the election under this 
                paragraph--
                            ``(i) the gross income of each child to 
                        whom such election applies shall be included in 
                        such parent's gross income for the taxable 
                        year,
                            ``(ii) the deductions to which such child 
                        would be entitled without regard to such 
                        election shall be allowed to such parent but 
                        only to the extent the aggregate of such 
                        deductions does not exceed the gross income of 
                        such child,
                            ``(iii) any estimated tax payment, and any 
                        amount which has been deducted and withheld 
                        under chapter 24, for such year that is made in 
                        the name and TIN of such child shall be treated 
                        as an estimated tax payment or as an amount 
                        deducted and withheld in the name and TIN of 
                        such parent for such year (including for 
                        purposes of section 31), and
                            ``(iv) any interest which is an item of tax 
                        preference under section 57(a)(5) of the child 
                        shall be treated as an item of tax preference 
                        of such parent (and not of such child).
                    ``(C) Special rule for determining which parent may 
                make election.--For purposes of this paragraph, the 
                parent of a child to whom this subsection applies who 
                may make an election under this paragraph shall be--
                            ``(i) in the case of parents who are not 
                        married (within the meaning of section 7703), 
                        the custodial parent (within the meaning of 
                        section 152(e)) of the child, and
                            ``(ii) in the case of married individuals 
                        filing separately, the individual with the 
                        greater taxable income.
                    ``(D) Carryovers allowed.--Subparagraph (A)(i)(II) 
                shall not prohibit the carryover of any amount that the 
                child would be entitled to carryover without regard to 
                the election under this paragraph.
                    ``(E) Regulations.--The Secretary shall prescribe 
                such regulations as may be necessary or appropriate to 
                carry out the purposes of this paragraph.''.
    (c) Conforming Amendment.--The heading for subsection (g) of 
section 1 of such Code is amended to read as follows:
    ``(g) Treatment of Certain Income of Minor Children.--''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2004.

Summary: Taxation of Minor Children Simplification Act of 2004 - Amends the Internal Revenue Code to revise rules for the taxation of the income of minor children (under age 14). Repeals the allocable parental tax rules. Allows parents to elect to claim the child's gross income and deductions on the parents' tax return.