IRS ANNOUNCES 1993 INFLATION ADJUSTMENTS.

Rev. Proc. 92-102

SECTION 1. PURPOSE

This revenue procedure sets forth the following inflation adjusted items for tax years beginning in 1993:

1. the tax rate tables for individuals and for estates and trusts;

2. the basic standard deduction amounts for different filing statuses, the limitation on the standard deduction in the case of certain dependents, and the additional standard deduction amounts for the aged and for the blind;

3. the personal exemption and the phaseout of the tax benefit of personal exemptions;

4. the earned income credit;

5. the amounts allowed against unearned income in computing the "kiddie tax," which taxes a minor child's net unearned income at the marginal rate that applies to the income of the child's parent;

6. the limitations on the exclusion of income from the redemption of United States savings bonds for taxpayers who pay qualified higher education expenses;

7. the overall limitation on itemized deductions; and

8. the insubstantial benefit limitations for contributions associated with charitable fund-raising campaigns.

SEC. 2. 1993 TAX RATE TABLES

The following adjusted tax rate tables are prescribed in lieu of the tables in subsections (a), (b), (c), (d), and (e) of section 1 of the Code with respect to tax years beginning in 1993.

      TABLE 1 - Section 1(a). -- MARRIED INDIVIDUALS FILING JOINT

01 The following adjusted standard deduction amounts are prescribed in lieu of the amounts set forth in section 63(c)(2) of the Code with respect to tax years beginning in 1993.

           Filing Status                      Standard Deduction

03 The additional standard deduction amounts for the aged and for the blind allowed under section 63(f) of the Code for tax years beginning in 1993 are $700 for each. These amounts are each increased to $900 if the individual is also unmarried and not a surviving spouse.

SEC. 4. 1993 PERSONAL EXEMPTION

01 Section 151(b) of the Code generally allows a taxpayer an exemption for himself or herself. Section 151(c) generally allows a taxpayer additional exemptions for dependents as defined in section 152. The personal exemption for tax years beginning in 1993 is $2,350.

02 Section 151(d)(3) of the Code provides for the phaseout of the tax benefit of the personal exemptions allowed by section 151. For 1993 the "threshold amounts" of adjusted gross income above which that phaseout begins, and the amounts above which the benefit is completely phased out are as follows:

                               Phaseout            Phaseout

01 Section 32 of the Code provides a "basic earned income credit" which for 1993 is allowed at a rate of 18.5 percent for a taxpayer with one qualifying child and 19.5 percent for a taxpayer with two or more qualifying children. This credit may be increased by a "supplemental young child credit" which is allowed at a rate of 5 percent for a taxpayer with a qualifying child who has not attained age 1 as of the close of the calendar year. In addition, a "health insurance credit" is allowed at a rate of 6 percent for certain health insurance expenses.

02 For tax years beginning in 1993, these credits will be allowed on the first $7,750 of earned income. These credits will be phased out if the taxpayer's adjusted gross income (or, if greater, earned income) exceeds $12,200.

03 For tax years beginning in 1993, the maximum basic earned income credit will be $1,434 [.185 x $7,750] for a taxpayer with one qualifying child and $1,511 [.195 x $7,750] for a taxpayer with two or more qualifying children. The credit phases out at a rate of 13.21 percent for a taxpayer with one qualifying child and 13.93 percent for a taxpayer with two or more qualifying children.

04 For tax years beginning in 1993, the maximum supplemental young child credit will be $388 [.05 x $7,750]. The credit phases out at a rate of 3.57 percent.

05 For tax years beginning in 1993 the maximum health insurance credit will be $465 [.06 x $7,750]. The credit phases out at a rate of 4.285 percent.

06 The Internal Revenue Service will prescribe tables showing the amount of the basic earned income credit, the supplemental young child credit, and the health insurance credit. The tables will phase out the credits completely at $23,050 of adjusted gross income, or earned income, as the case may be.

SEC. 6. UNEARNED INCOME OF MINOR CHILDREN TAXED AS IF PARENT'S INCOME (THE "KIDDIE TAX")

01 Section 1(g) of the Code provides that the tax on the net unearned income of a child under the age of 14 is computed at the marginal rate of the child's parent. Under section 1(g)(4)(A)(ii) net unearned income generally equals unearned income less the sum of (I) the amount in effect for the tax year under section 63(c)(5)(A), plus (II) the greater of the amount described in (I) or certain itemized deductions.

02 The amount in effect for 1993 under section 63(c)(5)(A) is $600. See section 3.02. Accordingly, for tax years beginning in 1993 net unearned income will generally equal unearned income less the greater of $1,200 or $600 plus certain itemized deductions.

SEC. 7. INCOME FROM UNITED STATES SAVINGS BONDS FOR TAXPAYERS WHO PAY QUALIFIED HIGHER EDUCATION EXPENSES

01 Section 135 of the Code provides an exclusion of income from the redemption of United States savings bonds for taxpayers who pay qualified higher education expenses. Section 135(b)(2) provides for the phaseout of the exclusion. The amount of the reduction in the exclusion caused by the phaseout is calculated by multiplying the amount otherwise excludable by a fraction. The numerator of the fraction is the excess of the taxpayer's modified adjusted gross income over the threshold amount ($68,250 for joint returns or $45,500 for others) and the denominator is $30,000 for joint returns or $15,000 for others.

02 For tax years beginning in 1993, the amounts of modified adjusted gross income above which the phaseout of the exclusion begins, and the amounts at which the benefit is completely phased out are as follows:

                               Phaseout            Phaseout

01 Section 68 of the Code provides that the amount of itemized deductions otherwise allowable for the tax year shall be reduced by the lesser of (1) 3 percent of the excess of adjusted gross income over the "applicable amount," or (2) 80 percent of the amount of certain itemized deductions otherwise allowable for the tax year.

02 The "applicable amount" for tax years beginning in 1993 is $108,450 ($54,225 in the case of a separate return by a married individual within the meaning of section 7703 of the Code).

SEC. 9. INSUBSTANTIAL BENEFIT LIMITATIONS FOR CONTRIBUTIONS ASSOCIATED WITH CHARITABLE FUND-RAISING CAMPAIGNS

01 Section 513(h)(1)(A) of the Code provides that, in the case of certain exempt organizations, the term "unrelated business income" does not include activities relating to the distribution of "low cost articles" (as defined in section 513(h)(2)) if the distribution of such articles is incidental to the solicitation of charitable contributions.

02 Section 3 of Rev. Proc. 90-12, 1990-1 C.B. 471, as amplified by Rev. Proc. 92-49, 1992-1 C.B. 987, provides guidelines for determining the deductible amount of contributions under section 170 of the Code when the contributors receive something in return for their contributions. The guidelines provide that insubstantial benefits received by the contributor (in the context of a charitable fund-raising campaign) are disregarded, which makes the contribution fully deductible under section 170. The guidelines further provide the following three alternative limitations on what are insubstantial benefits:

(1) The fair market value of all the benefits received is not more than 2-percent of the contribution, or $50 (the "$50 benefit" limitation), whichever is less;

(2) The contribution is $25 (the "$25 payment" limitation) or more, and the only benefits received by the donor in return during the calendar year have a cost, in the aggregate, of not more than a "low cost article" under section 513(h)(2) of the Code; or

(3) In connection with a request for a charitable contribution, the charity mails or otherwise distributes free, unordered items to patrons, and the cost of such items (in the aggregate) distributed to any single patron in a calendar year is not more than a "low cost article" under section 513(h)(2) of the Code.

03 For tax years beginning in 1993, the "$50 benefit" limitation is $62, the "$25 payment" limitation is $31, and the "low cost article" limitation is $6.20.

SEC. 10. COMPUTATION OF INFLATION ADJUSTMENTS

01 Section 1(f)(1) of the Code provides that not later than December 15 of each calendar year, the Secretary shall prescribe inflation-adjusted tax rate tables that apply in lieu of the tax rate tables in section 1 with respect to tax years beginning in the succeeding calendar year.

Under section 1(f)(3) of the Code, the inflation adjustment for a calendar year is the percentage (if any) by which the Consumer Price Index (CPI) for the preceding calendar year exceeds the CPI for the calendar year 1989. For purposes of computing the inflation adjustment, section 1(f)(4) defines the CPI as the average of the 12 monthly CPIs for the 12-month period ending on August 31 of such calendar year. Under section 1(f)(5), the CPI is that for all-urban consumers published by the Department of Labor.

Section 1(f)(2)(A) of the Code provides that the inflation adjustment is reflected in the tax rate tables by increasing the minimum and maximum amounts subject to the 15%, 28%, and 31% tax brackets. Under section 1(f)(6), an adjusted bracket amount is "rounded down" to the nearest multiple of $50 ($25 in the case of married individuals filing separately).

02 Under section 63(c)(4) of the Code, the standard deduction amounts (including the limitation for certain dependents and the additional standard deduction amounts for the aged and for the blind) are adjusted for inflation under the method described in section 1(f)(3), except that the preceding calendar year's CPI is compared with the CPI for the calendar year 1987. Under section 1(f)(6), an adjusted amount is "rounded down" to the nearest multiple of $50 ($25 in the case of married individuals filing separately).

03 Section 151(d)(4)(A) of the Code provides that the personal exemption amount is adjusted for inflation under the method described in section 1(f)(3), except that the preceding calendar year's CPI is compared with the CPI for the calendar year 1988. The adjusted exemption is "rounded down" to the nearest multiple of $50 under section 1(f)(6).

Section 151(d)(4)(B) of the Code provides that the "threshold amounts" at which the phaseout of the tax benefit of the personal exemptions begins are adjusted for inflation under the method described in section 1(f)(3), except that the preceding calendar year's CPI is compared with the CPI for the calendar year 1990. Under section 1(f)(6), an adjusted "threshold amount" is "rounded down" to the nearest multiple of $50 ($25 in the case of married individuals filing separately).

04 Section 32(i) of the Code provides that the dollar amounts of the limitations applicable to the earned income credit are adjusted for inflation under the method described in section 1(f)(3), except that the preceding calendar year's CPI is compared with the CPI for the calendar year 1984. Under section 32(i)(3), an adjusted amount is rounded to the nearest multiple of $10 (or, if the adjusted amount is a multiple of $5, it is increased to the next highest multiple of $10).

05 Section 135(b)(2)(B) of the Code provides that the dollar amount at which the phaseout of the exclusion (of income from the redemption of United States savings bonds for taxpayers who pay qualified higher education expenses) begins is adjusted for inflation under the method described in section 1(f)(3). The preceding calendar year's CPI is compared with the CPI for the calendar year 1989. The adjusted dollar amount is rounded to the nearest multiple of $50 (if the adjusted figure is a multiple of $25, it is increased to the next highest multiple of $50) under section 135(b)(2)(C).

06 Section 68(b)(2) of the Code provides that the "applicable amount" for the overall limitation on itemized deductions is adjusted for inflation under the method described in section 1(f)(3), except that the preceding calendar year's CPI is compared with the CPI for the calendar year 1990. Under section 1(f)(6), the adjusted "applicable amount" is "rounded down" to the nearest multiple of $50 ($25 in the case of married individuals filing separately).

07 Section 513(h)(2)(C) of the Code provides that the maximum cost of a "low cost article" is adjusted for inflation under the method described in section 1(f)(3), except that the preceding calendar year's CPI is compared with the CPI for the calendar year 1987.

Rev. Proc. 90-12 provides for the adjustment of the "low cost article" and the "$25 payment" limitations in that revenue procedure as provided under section 513(h)(2)(C) of the Code. The "$50 benefit" limitation in that revenue procedure is adjusted in the same manner.

SEC. 11. INFLATION ADJUSTMENT FACTORS (GROUPED AND LISTED BY BASE YEARS)

01 1990 base year adjustments -- The CPI for 1992 is 138.9250000000 and the CPI for 1990 is 128.0583333333. This results in an inflation adjustment factor of 1.0848571614. This factor applies to the phaseout of personal exemptions and the limitation on itemized deductions for tax years beginning in 1993.

02 1989 base year adjustments -- The CPI for 1992 is 138.9250000000 and the CPI for 1989 is 122.1500000000. This results in an inflation adjustment factor of 1.1373311502. This factor applies to the tax rate tables and the qualified higher education expense exclusion for tax years beginning in 1993.

03 1988 base year adjustments -- The CPI for 1992 is 138.9250000000 and the CPI for 1988 is 116.6166666667. This results in an inflation adjustment factor of 1.1912962698. This factor applies to the personal exemption for tax years beginning in 1993.

04 1987 base year adjustments -- The CPI for 1992 is 138.9250000000 and the CPI for 1987 is 111.9833333333. This results in an inflation adjustment factor of 1.2405863968. This factor applies to the standard deduction amounts and the insubstantial benefit limitations for contributions for tax years beginning in 1993.

05 1984 base year adjustments -- The CPI for 1992 is 138.9250000000 and the CPI for 1984 is 102.4916666667. This results in an inflation adjustment factor of 1.3554760550. This factor applies to the earned income credit for tax years beginning in 1993.

SEC. 12. EFFECT ON OTHER REVENUE PROCEDURE

Rev. Proc. 90-12, as amplified by Rev. Proc. 92-49, is modified to provide for the indexing of the "$50 benefit" limitation.

SEC. 13. EFFECTIVE DATE

This revenue procedure is applicable for all tax years beginning in 1993.

SEC. 14. DRAFTING INFORMATION

The principal author of this revenue procedure is John Moran of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this revenue procedure, contact Mr. Moran on (202) 622-4940 (not a toll-free call).

The economist responsible for development of the factors set forth in this revenue procedure is Andre F. Palmer of the Research Division, Office of the Assistant Commissioner (Planning and Research). For further information regarding these factors, contact Mr. Palmer on (202) 874-0558 (not a toll-free call).