IRS RELEASES INFLATION ADJUSTED TABLES FOR 1999.

Rev. Proc. 98-61

                           TABLE OF CONTENTS

This revenue procedure sets forth inflation adjusted items for 1999.

SECTION 2. CHANGES MADE FROM PRECEDING YEAR

.01 The amount used in determining the exemption under sections 55 and 59(j), as amended by section 1201(b) of the Taxpayer Relief Act of 1997 (the "TRA of 1997"), Pub. L. No. 105-34, 111 Stat. 788 (1997), from the alternative minimum tax under section 55 for a child subject to the "kiddie tax" under section 1(g), is adjusted for inflation for tax years beginning in 1999 (section 3.04).

.02 The amounts used to determine whether a health plan is a "high deductible health plan" for purposes of determining whether an individual is eligible for a deduction for cash paid to a medical savings account under section 220, as enacted by section 301(a) of the Health Insurance Portability and Accountability Act of 1996, Pub. L. No. 104-191, 110 Stat. 1936 (1996), are adjusted for inflation for tax years beginning in 1999 (section 3.10).

.03 The maximum amount of contributions that may be made to a qualified funeral trust defined in section 685, as enacted by section 1309(a) of the TRA of 1997, is adjusted for inflation for calendar year 1999 (section 3.13).

.04 The maximum amount by which the estate tax valuation method under section 2032A, as amended by section 501(b) of the TRA of 1997, may decrease the value of certain farm and other qualified real property included in a decedent's gross estate, is adjusted for inflation for calendar year 1999 (section 3.15).

.05 The amount of gifts that may be made to a person in a calendar year without including the amount in taxable gifts under section 2503, as amended by section 501(c) of the TRA of 1997, is adjusted for inflation for calendar year 1999. Also, under section 2523(i)(2) by cross reference to section 2503, the amount of gifts that may be made to a spouse who is not a citizen of the United States in a calendar year without including the amount in taxable gifts under section 2503 is adjusted for inflation for calendar year 1999 (section 3.16).

.06 The amount of the generation-skipping transfer tax exemption under section 2631, as amended by section 501(d) of the TRA of 1997, which was technically corrected by section 6007(a)(1) of the Internal Revenue Service Restructuring and Reform Act of 1998 (the "RRA of 1998"), Pub. L. No. 105-206, 112 Stat. 685 (1998), is adjusted for inflation for calendar year 1999 (section 3.17).

.07 The amount of the excise tax on passenger air transportation beginning or ending in the United States under section 4261, as amended by section 1031(c) of the TRA of 1997, is adjusted for inflation for calendar year 1999 (section 3.19).

.08 The maximum amount of a casual sale of personal property below which a federal tax lien will not be valid against a purchaser of the property under section 6323(b)(4), and the maximum amount of a contract for the repair or improvement of certain residential property at or below which a federal tax lien will not be valid against a mechanic's lienor under section 6323(b)(7), each as amended by section 3435(a) of the RRA of 1998, are adjusted for inflation for calendar year 1999 (section 3.22).

.09 For purposes of calculating interest charged under section 6601(j), as amended by section 501(e) of the TRA of 1997, the dollar amount used to determine the "2 percent portion" of the estate tax payable in installments under section 6166 is adjusted for inflation for calendar year 1999 (section 3.23).

.10 The amount of the limit on the hourly rate at which attorney fees may be awarded under section 7430 in a judgment or settlement of an administrative or judicial proceeding concerning the determination, collection, or refund of tax, interest, or penalty under the Code was increased to $125, as adjusted for inflation, effective for costs incurred after January 18, 1999, by section 3101(a)(1) of the RRA of 1998 (section 3.24).

SECTION 3. 1999 ADJUSTED ITEMS

.01 Tax Rate Tables. For tax years beginning in 1999, the tax rate tables under section 1 are as follows:

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

.03 Earned Income Credit.

(1) In general. For tax years beginning in 1999, the following amounts are used to determine the earned income credit under section 32(b). The "earned income amount" is the amount of earned income at or above which the maximum amount of the earned income credit is allowed. The "threshold phaseout amount" is the amount of modified adjusted gross income (or, if greater, earned income) above which the maximum amount of the credit begins to phase out. The "completed phaseout amount" is the amount of modified adjusted gross income (or if greater, earned income) at or above which no credit is allowed.

             Maximum                     Threshold      Completed

(2) Excessive investment income. For tax years beginning in 1999, the earned income credit is denied under section 32(i) if the aggregate amount of certain investment income exceeds $2,350.

.04 Alternative Minimum Tax Exemption for a Child Subject to the "Kiddie Tax." For tax years beginning in 1999, in the case of a child to whom the section 1(g) "kiddie tax" applies, the exemption amount under section 55 and section 59(j) for purposes of the alternative minimum tax under section 55 may not exceed the sum of (A) such child's earned income for the taxable year, plus (B) $5,100.

.05 Standard Deduction.

(1) In general. For tax years beginning in 1999, the standard deduction amounts under section 63(c)(2) are as follows:

 Filing Status                                Standard Deduction

(3) Aged and blind. For tax years beginning in 1999, the additional standard deduction amounts under section 63(f) for the aged and for the blind are $850 for each. These amounts are increased to $1,050 if the individual is also unmarried and not a surviving spouse.

.06 Overall Limitation on Itemized Deductions. For tax years beginning in 1999, the "applicable amount" of adjusted gross income under section 68(b), above which the amount of otherwise allowable itemized deductions is reduced under section 68, is $126,600 (or $63,300 for a separate return filed by a married individual).

.07 Income from United States Savings Bonds for Taxpayers Who Pay Qualified Higher Education Expenses. For tax years beginning in 1999, the exclusion under section 135, regarding income from United States savings bonds for taxpayers who pay qualified higher education expenses, begins to phase out for modified adjusted gross income above $79,650 for joint returns and $53,100 for other returns. This exclusion completely phases out for modified adjusted gross income of $109,650 or more for joint returns and $68,100 or more for other returns.

.08 Personal Exemption.

(1) Exemption amount. For tax years beginning in 1999, the personal exemption amount under section 151(d) is $2,750.

(2) Phaseout. For tax years beginning in 1999, the personal exemption amount begins to phase out at, and is completely phased out after, the following adjusted gross income amounts:

                        Threshold        Completed

 Attained age before the close of the taxable year:

(1) Self-only coverage. For tax years beginning in 1999, the term "high deductible health plan" as defined in section 220(c)(2)(A) means, in the case of self-only coverage, a health plan which has an annual deductible that is not less than $1,550 and not more than $2,300, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits does not exceed $3,050.

(2) Family coverage. For tax years beginning in 1999, the term "high deductible health plan" means, in the case of family coverage, a health plan which has an annual deductible that is not less than $3,050 and not more than $4,600, and under which the annual out-of- pocket expenses required to be paid (other than for premiums) for covered benefits does not exceed $5,600.

.11 Treatment of Dues Paid to Agricultural or Horticultural Organizations. For tax years beginning in 1999, the limitation under section 512(d)(1), regarding the exemption of annual dues required to be paid by a member to an agricultural or horticultural organization, is $110.

.12 Insubstantial Benefit Limitations for Contributions Associated with Charitable Fund-Raising Campaigns.

(1) Low cost article. For tax years beginning in 1999, the unrelated business income of certain exempt organizations under section 513(h)(2) does not include a "low cost article" of $7.20 or less.

(2) Other insubstantial benefits. For tax years beginning in 1999, the $5, $25, and $50 guidelines in section 3 of Rev. Proc. 90-12, 1990-1 C.B. 471 (as amplified and modified), for disregarding the value of insubstantial benefits received by a donor in return for a fully deductible charitable contribution under section 170, are $7.20, $36, and $72, respectively.

.13 Funeral Trusts. For a contract entered into during calendar year 1999 for a "qualified funeral trust," as defined in section 685, the trust may not accept aggregate contributions by or for the benefit of an individual in excess of $7,100.

.14 Expatriation to Avoid Tax. For calendar year 1999, the thresholds used under section 877(a)(2), regarding whether an individual's loss of United States citizenship had the avoidance of United States taxes as one of its principal purposes, are more than $110,000 for "average annual net income tax" and $552,000 or more for "net worth."

.15 Valuation of Qualified Real Property in Decedent's Gross Estate. For an estate of a decedent dying in calendar year 1999, if the executor elects to use the special use valuation method under section 2032A for qualified real property, the aggregate decrease in the value of qualified real property resulting from electing to use section 2032A that is taken into account for purposes of the estate tax may not exceed $760,000.

.16 Annual Exclusion for Gifts.

(1) For calendar year 1999, the first $10,000 of gifts to any person (other than gifts of future interests in property) are not included in the total amount of taxable gifts under section 2503 made during that year.

(2) For calendar year 1999, the first $101,000 of gifts to a spouse who is not a citizen of the United States (other than gifts of future interests in property) are not included in the total amount of taxable gifts under sections 2503 and 2523(i)(2) made during that year.

.17 Generation-Skipping Transfer Tax Exemption. For calendar year 1999, the generation-skipping transfer tax exemption under section 2631, which is allowed in determining the "inclusion ratio" defined in section 2642, is $1,010,000.

.18 Luxury Automobile Excise Tax. For calendar year 1999, the excise tax under sections 4001 and 4003 is imposed on the first retail sale of a passenger vehicle (including certain parts or accessories installed within six months of the date after the vehicle was first placed in service), to the extent the price exceeds $36,000.

.19 Passenger Air Transportation Excise Tax. For calendar year 1999, the tax under section 4261(c) on any amount paid (whether within or without the United States) for any transportation of any person by air, if such transportation begins or ends in the United States, generally is $12.20. However, in the case of a domestic segment beginning or ending in Alaska or Hawaii as described in section 4261(c)(3), the tax only applies to departures and is at the rate of $6.10.

.20 Reporting Exception for Certain Exempt Organizations with Nondeductible Lobbying Expenditures. For tax years beginning in 1999, the annual per person, family, or entity dues limitation to qualify for the reporting exception under section 6033(e)(3) (and section 5.05 of Rev. Proc. 98-19, 1998-7 I.R.B. 30), regarding certain exempt organizations with nondeductible lobbying expenditures, is $77 or less.

.21 Notice of Large Gifts Received from Foreign Persons. For tax years beginning in 1999, recipients of gifts from certain foreign persons may have to report these gifts under section 6039F if the aggregate value of gifts received in a taxable year exceeds $10,735.

.22 Persons against Which a Federal Tax Lien is Not Valid. For calendar year 1999, a federal tax lien is not valid against (1) certain purchasers under section 6323(b)(4) that purchased personal property in a casual sale for less than $1,040, or (2) a mechanic's lienor under section 6323(b)(7) that repaired or improved certain residential property if the contract price with the owner is not more than $5,220.

.23 Interest on a Certain Portion of the Estate Tax Payable in Installments. For an estate of a decedent dying in calendar year 1999, the dollar amount used to determine the "2-percent portion" (for purposes of calculating interest under section 6601(j)) of the estate tax payable in installments under section 6166 is $1,010,000.

.24 Attorney Fee Awards. For calendar year 1999, for costs incurred on or before January 18, 1999, the attorney fee award limitation under section 7430(c)(1)(B)(iii) is $120 per hour. For costs incurred after January 18, 1999, the attorney fee award limitation under section 7430(c)(1)(B)(iii) is $130 per hour.

.25 Periodic Payments Received under Qualified Long-Term Care Insurance Contracts or under Certain Life Insurance Contracts. For calendar year 1999, the stated dollar amount of the per diem limitation under section 7702B(d)(4), regarding periodic payments received under a qualified long-term care insurance contract or periodic payments received under a life insurance contract that are treated as paid by reason of the death of a chronically ill individual, is $190.

SECTION 4. EFFECTIVE DATE

.01 General Rule. Except as provided in section 4.02, this revenue procedure applies to tax years beginning in 1999.

.02 Calendar Year Rule. This revenue procedure applies to transactions or events occurring in calendar year 1999 for purposes of section 3.13 (funeral trusts), section 3.14 (expatriation to avoid tax), section 3.15 (valuation of qualified real property in decedent's gross estate), section 3.16 (annual exclusion for gifts), section 3.17 (generation-skipping transfer tax exemption), section 3.18 (luxury automobile excise tax), section 3.19 (passenger air transportation excise tax), section 3.22 (persons against which a federal tax lien is not valid), section 3.23 (interest on a certain portion of the estate tax payable in installments), section 3.24 (attorney fee awards), and section 3.25 (periodic payments received under qualified long-term care insurance contracts or under certain life insurance contracts).

SECTION 5. 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).