Technical and Miscellaneous Revenue Act of 1988 (P.L. 100-647)

The first part of this document provides a list of identical substantive revenue provisions (including identical effective dates) in the House bill and the Senate amendment. The second part is a comparison of the differing substantive revenue provisions in the House bill and the Senate amendment: (1) diesel fuel excise tax collection and exemption procedures; (2) additional simplification and clarification provisions; (3) extensions and modifications of expiring tax provisions; (4) other substantive revenue provisions; (5) revenue-increase provisions; (6) railroad unemployment and retirement provisions; and (7) Social Security Act and Medicare and Medicaid amendments.

II. Additional Simplification and Clarification Provisions

• Business use of automobiles by rural letter carriers (sec. 332 of the House bill and sec. 760 of the Senate amendment).

• Repeal uniform capitalization rules for free-lance authors, photographers, and artists (sec. 338(a) of the House bill and sec. 795(a) of the Senate amendment).

• Election of producers of pistachio nuts to deduct preproductive period costs currently (sec. 338(c) of the House bill and sec. 800D of the Senate amendment).

• Treatment of stock held in trust in determining whether certain corporations may use the cash method of accounting (sec. 342 of the House bill and sec. 754 of the Senate amendment).

• Treatment of joint and survivor annuities under QTIP rules (sec. 323 of the House bill and sec. 713 of the Senate amendment).

• Allow rural telephone cooperatives to establish section 401(k) plans (sec. 351 of the House bill and sec. 714 of the Senate amendment).

• Study of tax treatment of certain technical services personnel (sec. 355 of the House bill and sec. 723 of the Senate amendment).

• Treatment of church self-insured death benefit plans as life insurance (sec. 343 of the House bill and sec. 717 of the Senate amendment).

• Minimum tax treatment of structured settlement arrangements (sec. 344(a) of the House bill and sec. 757 of the Senate amendment).

• Repeal of general creditor requirement for certain personal injury liability assignments (sec. 344(b) of the House bill and sec. 757 of the Senate amendment).

• Certain tolerances permitted in determination of wine excise tax (sec. 374 of the House bill and sec. 730 of the Senate amendment).

• Gasoline wholesalers permitted to claim refunds on behalf of certain exempt users (sec. 375 of the House bill and sec. 731 of the Senate amendment).

• Exemption from truck excise tax where benefit accrues to the United States (sec. 376 of the House bill and sec. 800H of the Senate amendment).

• Exemption from harbor maintenance tax for cargo donated overseas for humanitarian purposes (sec. 377 of the House bill and sec. 726 of the Senate amendment).

• Dual resident companies (sec. 356 of the House bill and sec. 745 of the Senate amendment).

• Election to treat passive foreign investment company (PFIC) stock as stock in a qualified electing fund (sec. 357 of the House bill and sec. 732 of the Senate amendment).

• Treatment of certain insurance branches of controlled foreign corporations (sec. 361 of the House bill and sec. 748 of the Senate amendment).

• Debt-equity ratio of Netherlands Antilles finance subsidiaries (sec. 359 of the House bill and sec. 800L of the Senate amendment).

• Disclosure of return information to certain cities (sec. 381 of the House bill and sec. 735 of the Senate amendment).

• Repeal of limitation on Treasury long-term bond authority (sec. 389 of the House bill and sec. 421 of the Senate amendment).

• One-year extension of placed-in-service rule for nonconventional fuels tax credit (sec. 390 of the House bill and sec. 751 of the Senate amendment).

• Valuation of group term life insurance (sec. 347 of the House bill and Senate amendment).

• Repeal special rates and credits for foreign estates (sec. 373 of the House bill and Senate amendment).

Exemptions are provided from the diesel fuel tax for State and local governments, farms, nonprofit educational organizations, and business use other than as a fuel in a highway vehicle. The tax on nongasoline aviation fuel applies only to fuel used in noncommercial aviation.

Treasury is authorized to permit tax-free sales in the case of diesel fuel for use in a diesel-powered train; use as commercial aviation fuel; use other than as a motor fuel; use by a State or local government.

(2) Treasury is required to issue initial rules regarding registration and financial responsibility requirements for exempt users purchasing fuel tax-free within 30 days after the date of enactment.

(2) Same as the House bill, except Treasury is required to issue such rules before October 1, 1988.

(2) A person entitled to a refund of $1,000 or more during any one of the first three calendar quarters of a year may file a claim for refund of tax paid for that quarter. Otherwise, the refund claim can be made only at the end of the calendar year.

(2) No provision.

(2) The refund threshold is changed so that an exempt user may file for a refund if at least $750 in tax (in the aggregate) is paid as of the end of any of the first 3 calendar quarters (without waiting until after the end of the year).

(2) No provision.

(2) Where fuel is purchased tax-paid by an exempt user (e.g. from a retail dealer), State and local governments and off-highway exempt users (other than bus operators) will be paid interest on refund claims at the regular deficiency rate.

The House bill replaces the present-law sanctions for failures to satisfy the health care continuation rules with an excise tax.

Amount of excise tax

The amount of the excise tax is $100 per day during the noncompliance period with respect to a failure to satisfy the health care continuation rules. The tax applies separately with respect to each qualified beneficiary for whom a failure occurs.

Noncompliance period

The noncompliance period generally begins on the date a failure first occurs and ends on the earlier of (1) the date the failure is corrected, or (2) the date that is one year after the last date on which the employer could have been required to provide continuation coverage to the qualified beneficiary. Subject to special rules described below, the noncompliance period does not start on the date the failure first occurred if it can be established that none of the persons who could be liable for the tax knew, or should have known, that the failure existed. In such a case, the noncompliance period does not begin until any of such persons knew or should have known of the failure.

Grace period

The excise tax generally does not apply to any failure if such failure was due to reasonable cause and not to willful neglect and the failure is corrected within the first 30 days of the noncompliance period.

Audit rule

A special audit rule overrides the inadvertent-failure and grace-period rules. Under the audit rule, if a failure with respect to a qualified beneficiary is not corrected by the date a notice of examination of income tax liability is sent to the employer and the failure occurred or continued during the period under examination, the excise tax is not to be less than the lesser of (1) $2,500 or (2) the excise tax determined without regard to the inadvertent-failure and grace-period rules. If failures for any year are more than de minimis with respect to the employer (or multiemployer plan in the case of coverage under such a plan), $15,000 is substituted for $2,500 for that year with respect to such employer (or multiemployer plan) and any other person liable with respect to the failure.

Maximum liability

In the case of failures with respect to plans other than multiemployer plans, the maximum excise tax for failures during an employer's taxable year is the lesser of (1) 10 percent of the total amount paid or incurred by the employer during the preceding taxable year for the employer's group health plans, or (2) $500,000. In the case of failures with respect to a multiemployer plan, the maximum excise tax for failure during the taxable year of the trust that is part of the plan is the lesser of (1) 10 percent of the total amount paid or incurred by the trust to provide medical care, or (2) $500,000. These caps on the amount of the excise tax do not apply if the failure is due to willful neglect.

Liable persons

In the case of a failure with respect to coverage provided by a plan other than a multiemployer plan, the employer is liable for the excise tax. In addition, any other person is liable for the tax if the person (1) is responsible for administering or providing benefits under the plan pursuant to a legally enforceable written agreement, and (2) failed to perform one or more of such responsibilities and thereby caused (in whole or in part) the failure. In addition, another person may be liable for the excise tax if the person fails to comply with a written request of the employer (or qualified beneficiary or plan administer) to make available to qualified beneficiaries the same benefits that the person provides to similarly situated active employees. In the case of a multiemployer plan, the rules described above apply, except that "multiemployer plan" is substituted for "employer".

Waiver

The Secretary may waive all or part of the excise tax if the failure is due to reasonable cause and not to willful neglect to the extent the tax would be unduly burdensome relative to the failure.

Same as the House bill, with the exceptions noted below.

Amount of excise tax

Same as House bill, except that if a failure occurs with respect to members of the same family, the excise tax applies only once with respect to the failure.

Noncompliance period

Same as the House bill, except that the general noncompliance period begins on the date a failure first occurs and ends on the earlier of (1) the date the failure is corrected, or (2) the date that is the last date on which the employer could have been required to provide continuation coverage.

Grace period

Same as House bill.

Audit rule

Same as House bill, except that if the excise tax is imposed on a person other than the employer (or multiemployer plan in the case of coverage under such a plan), only violations of the continuation coverage rules by such other person are taken into account in determining whether the violations are de minimis.

Maximum liability

Same as the House bill.

Liable persons

Same as the House bill, except that the Senate amendment does not contain the provision providing that persons are liable for the excise tax if they are responsible for administering or providing benefits under a written agreement.

Waiver

Same as House bill, except that the Secretary may waive to the extent the tax would be excessive.

Also, the sworn statements regarding family status and core health coverage from another employer generally are required to relate to the facts in existence on the plan's testing date. This requirement does not apply to years beginning in 1989.

Such tables are to be adjusted in certain instances to take into account the specific coverage and group involved. For example, in determining the value of discriminatory coverage, the actual costs expended by the employer may be taken into account and allocated among all coverages, including the discriminatory coverage, on the basis of the relative values of such coverages, as determined under the tables.

The House bill also provides that both during and after the application of the temporary special valuation rules, in determining the benefits provided under a multiemployer plan, an employer generally may treat the contribution it makes to the plan on behalf of an employee as the benefit provided to the employee under such multiemployer plan. This special rule for multiemployer plans does not apply to a multiemployer plan that covers any professional (e.g., a doctor, lawyer, or investment banker).

The Senate amendment modifies the House bill with respect to the special valuation rule for benefits provided under a multiemployer plan based on the employer contribution. The amendment provides that the Secretary is to prescribe rules for the allocation of contributions that relate to benefits of different types. Under such rules, the allocation may be based on the prior year's claims or premiums, if this is reasonable under the circumstances. The amendment also clarifies that an employer may value benefits provided under a multiemployer plan under the generally applicable valuation rules without regard to the special rule.

In addition, any other plan may be aggregated with the group of plans described above if such other plan is comparable (under the otherwise applicable comparability standard) to the plan within the group with the largest employer-provided benefit.

A plan also may be treated as comparable to the group of plans described above with respect to an employee if (1) the employee is eligible under the plan within the group with the largest employer-provided benefit, (2) the contribution under the plan outside the group is within the range permitted with respect to the group of plans, and (3) the employer-provided benefit under the plan outside of the group is less than the employer-provided benefit under the plan within the group with the largest such benefit. The first two requirements in the prior sentence only apply to nonhighly compensated employees.

The second modification of the aggregation rules is that an employer may aggregate accident and health benefits with benefits of a different type for purposes of the 75-percent benefits test even if the employer elects to apply the 75-percent benefits test separately to coverage of employees and coverage of employees' spouses and dependents. In the event of such separate testing, the employer may aggregate with the benefits of another type the employee coverage, the coverage of the spouses and dependents, or both; however, for purposes of this aggregation, no employee or family member may be disregarded based on the receipt of other health coverage or on not having a family.

The Senate amendment also deletes the House bill provision under which an employer that uses the exception in the House bill for age-related costs or the exception provided above must use the same exception with respect to all group-term life insurance coverage of the employer. Under the amendment, if one of the exceptions is used with respect to a plan, the same exception must be used with respect to all plans aggregated with such plan for purposes of the 50-percent test and the 80-percent test. In addition, for purposes of applying the 90-percent/50-percent test and the 75-percent test, the employer must elect to apply the tests as if it had used the general rule or one of the two exceptions with respect to all plans being tested.

Present law permits employers to secure the sworn statements from a statistically valid sample of all employees.

Further, no nonhighly compensated employee (or family member) may be disregarded based on their receipt of other core health coverage unless the employee has the right, if such other coverage ceases, to elect health coverage from the employer without regard to whether it otherwise is open season. For all purposes, such election is to be on the same terms as if such employee initially had elected health coverage from the employer and at a subsequent open season was changing such coverage. A similar rule applies in the case of the treatment of an employee as not having a family. The modifications described in this paragraph apply to years beginning after December 31, 1989.

Also under the bill, an employer ("first employer") may treat an individual as having core health coverage from another employer without a sworn statement if (1) the first employer makes core health coverage available to the individual at no cost, and (2) such coverage and all other core health coverage from the first employer are rejected.

Same as the House bill.

For purposes of the rule described above, a bona fide line of business or operating unit is not treated as separate unless (1) it has at least 50 employees; (2) the employer notifies the Secretary with respect to the line or unit; and (3) either certain guidelines are satisfied or a determination is received from the Secretary. There is a safe-harbor method of satisfying the third requirement based on the proportion of highly compensated and nonhighly compensated employees in the line of business or operating unit (sec. 414(r)(3)).

In addition, an operating unit is not recognized for purposes of these rules unless, for bona fide business reason[s], it is operated separately in a geographic area significantly separate from another operating unit in the same line of business.

Present law provides special rules for allocating employees who work for more than one line of business or operating unit to a particular line of business or operating unit. The first step in such allocation is to allocate to a line of business or operating unit any employee who performs a majority of his or her service for such line of business or operating unit.

The present-law rules that allocate to a line of business or operating unit any employee who performs a majority of his or her services for such line of business or operating unit are modified so that only employees who perform at least 75 percent of their services for a particular line of business or operating unit are required to be allocated to such line or unit.

The modifications described above with respect to separate lines of business or operating units also apply for qualified plan purposes.

An employer is not entitled to make this election with respect to a current testing year unless (1) the employer did not maintain a top-heavy plan (sec. 416) at any time during such year, and (2) at all times during such year, the employer maintained business activities and employees in at least two geographically separate areas.

For subsequent testing years, an employee is considered to work normally the average number of hours worked during the preceding testing year (disregarding any time the employee was not employed by the employer). In determining the number of hours an employee has worked or is scheduled to work, rules similar to the qualified plan "hour of service" rules apply.

In addition, present law permits the employer-provided benefit to be proportionately reduced under specified rules for employees who normally work less than 30 hours per week. These rules may not be applied, however, for any purpose in a plan year unless during such year more than 50 percent of the nonexcludable employees (determined without regard to plan provisions) normally work at least 30 hours per week. The amendment would allow the proportional reduction without regard to the 50-percent test described in the preceding sentence.

With respect to any multiemployer plan, this provision is effective retroactively to the date that section 6039D first applied to the plan.

1. Scope of provision

(b) Section 2036(c) does not apply by reason of the retention of certain interests. One such interest is qualified debt, which, among other things, is required to have a fixed maturity date within 15 years of issue, and not to be subordinated by its terms to the claims of general creditors. In addition, qualified debt must not grant voting rights or place any limitation (other than in a case where the debt is in default) upon the exercise of voting rights by others.

(b) Decedents dying after December 31, 1987.

(b) Same as the House bill except that qualified debt need not have fixed maturity date within 15 years of the date of issue. In addition, such debt need not by its terms be subordinated to claims of general creditors. Finally, the requirement that qualified debt not grant voting rights permits voting rights when there is a default as to payment of interest or principal.

2. Deemed gift

3. Regulatory authority

4. Right of contribution

5. Adjustments

Various treaties, Federal statutes, and executive orders reserve to Indian tribes (mostly in the West and Great Lakes regions) rights to fish for subsistence and commercial purposes both on and off reservations. Because the treaties, statutes, and executive orders were adopted before passage of the Federal income tax, they do not expressly provide whether income derived by Indians from protected fishing activities is exempt from taxation.

The section 127 exclusion for educational assistance is restored retroactively to the date of expiration and is extended so that it expires for taxable years beginning after December 31, 1990. The prior-law limit of $5,250 is reduced to $1,500.

Graduate-level education

The exclusion does not apply to any payment for, or the provision of any benefits with respect to, any graduate-level courses of a kind normally taken by an individual pursuing a program leading to a law, business, medical, or similar advanced academic or professional degree. For this purpose, the phrase "graduate-level course" means a course taken by an individual who (1) has received a bachelor's degree (or the equivalent thereof), or (2) is receiving credit toward a more advanced degree.

The section 127 limitation with respect to graduate-level courses does not affect the eligibility of tuition reduction benefits paid to graduate teaching or research assistants at colleges or universities to be excluded from income under section 117(d) subject to the compensation limitation of section 117(c).

Sports, games, and hobbies

The bill clarifies that education with respect to a subject commonly considered a sport, game, or hobby, such as photography or gardening, is ineligible for the exclusion unless such education (1) has a reasonable relationship to an activity maintained by the employee for profit, (2) has a reasonable relationship to the business of the employer, or (3) is required as part of a degree program.

Single trust

No provision.

The section 127 exclusion is restored retroactively to the date of expiration and is extended so that it expires for taxable years beginning after December 31, 1988.

Graduate-level education

Same as the House bill, except the prior-law rules relating to benefits provided to graduate teaching and research assistants are retained under sections 117(d) and 127.

Sports, games, and hobbies

Same as the House bill.

Single trust

It was unclear under prior law whether the prohibition on providing employees with a choice between nontaxable educational assistance benefits under section 127 and other remuneration includible in gross income prohibited the provision of taxable and nontaxable educational assistance benefits from a single trust. The provision clarifies the prior-law rules so that it is permissible to pay taxable and nontaxable educational assistance benefits from the same trust.

(sec. 302 of the House bill).

2. Modifications to the low-income rental housing tax credit

(sec. 368 and 369 of the House bill and sec. 786 of the Senate amendment)

(a) To be a qualified low-income project, an allocation of credit authority must be received from the State in the year in which the building is placed in service. States may not carryover unused credit authority from one year to the next. A limited exception to these rules permits carry over of credit authority from the last year of authorized credit authority if a project is either new construction or a substantial rehabilitation, more than ten percent of anticipated costs were incurred before 1989, and the building is placed in service by the end 1990.

(b) To qualify as a credit project, the project must meet minimum low-income tenant occupancy requirements. In addition, the gross rent charged to low-income tenants may not exceed thirty percent of the applicable area median income qualifying as low income. Qualifying tenant incomes are adjusted for family size.

(c) If property for which a low-income housing credit is claimed ceases to qualify as low-income rental housing or is disposed of, a portion of the credits may be recaptured. Partnerships having more than thirty-five partners, with no more than fifty percent of the partnership interest being held by corporations, may elect to have the recapture determined at the partnership level rather than at the partner level.

(b) The bill would provide that changes in family size resulting from death, divorce, separation, and abandonment be disregarded in determining the maximum gross rent that may be charged an existing low-income tenant.

(c) The bill removes the restriction on corporate ownership for certain large partnerships. The bill also reverses the election of prior law, making large partnerships subject to recapture at the partnership level rather than the partner level, unless they elect otherwise.

(d) Committee report language is provided to clarify that a housing project is not disqualified from receiving a credit allocation solely because the developer undertook the project as a condition of receiving zoning variances for other, non-low-income-housing property.

(b) No provision.

(c) No provision.

(d) No provision.

(sec. 303 of the House bill and sec. 787 of the Senate amendment)

2. Modification to QMB and MCC requirements

(sec. 303 of the House bill and secs. 737 and 739 of the Senate amendment)

(sec. 305 of the House bill and sec. 793 of the Senate amendment)

Under present law, the credit is scheduled to expire after December 31, 1988.

The present-law research credit (including the university basic research credit) is extended for two additional years, i.e., for qualified research expenditures incurred through December 31, 1990.

GAO study

The General Accounting Office is directed to conduct a study of the structure, operation, and effectiveness of the credit, and to submit a report on the study (including any recommendations for targeting the credit more effectively and otherwise improving the credit) to the Committee on Ways and Means by December 31, 1989.

The present-law research credit (including the university basic research credit) is extended for three additional months, i.e., through March 31, 1989. A pro rata rule applies for purposes of computing the extended credit, pursuant to which the taxpayer's qualified research expenditures (or basic research payments) for January 1, 1989 through March 31, 1989 are deemed equal to one-quarter of the taxpayer's actual qualified research expenditures (or basic research payments) for January 1, 1989 through December 31, 1989.

GAO study

No provision.

2. Denial of deduction for amounts allowed as a research credit

(sec. 306 of the House bill)

Under the provision, the taxpayer may elect not to claim the full amount of the credit that otherwise would be available, thereby avoiding reduction of the section 174 deduction where the limitation imposed by the alternative minimum tax prevents full use of the credit.

3. Allocation and apportionment of R&D

(sec. 307 of the House bill and sec. 796 of the Senate amendment)

1. Tax credit provisions

2. Authorization of appropriations

The Omnibus Budget Reconciliation Act of 1987 delayed treatment of expenses of publicly offered mutual funds as miscellaneous itemized deductions until taxable years beginning after December 31, 1987. A publicly offered mutual fund is a mutual fund the shares of which are (1) continuously offered pursuant to a public offering (under sec. 4 of the Securities Act of 1933), (2) regularly traded on an established securities market, or (3) held by no fewer than 500 persons at all times during the taxable year. The Treasury Department may prescribe regulations decreasing the minimum 500-shareholder requirement for mutual funds that experience a loss of shareholders through net redemptions of their shares.

Under the modification, net operating losses existing at the time of the regulatory assistance, interest expense, and loan portfolio built-in losses are reduced by an amount equal to 50 percent of the tax-free FSLIC assistance payments. In the case of taxable asset acquisitions, there is no reduction in deductions on account of any payments made to make up the difference between the fair market value of the assets transferred and the liabilities assumed.

The above rules are also applied during the six-month period to financially troubled banks and to payments made to such banks by the Federal Deposit Insurance Corporation ("FDIC").

(2) The extension of tax-free reorganization rules, and the application of these rules to banks, apply to acquisitions after December 31, 1988, and before July 1, 1989.

(3) The extension of the carryforward rules, and the application of these rules to banks, apply to ownership changes occurring after December 31, 1988, and before July 1, 1989.

(sec. 331 of the House bill and sec. 728 of the Senate amendment)

As under present law, no amount paid for the actual purchase of tickets is deductible as a charitable contribution. The provision does not apply if the taxpayer receives tickets or seating (rather than the right to purchase tickets) in return for the payment.

2. Nonrecognition of gain on sale of old residence where one spouse dies before occupying new residence

(sec. 333 of House bill)

This provision for nonrecognition of gain does not apply if one spouse dies after the date of sale of the old residence and before the date of purchase of the new residence.

3. Full deductibility of meals provided to employees on certain vessels or drilling rigs

(sec. 334 of the House bill)

4. Treatment of certain innocent spouses

(sec. 335 of the House bill)

A refund (without interest) is allowed notwithstanding any law or rule of law if a refund claim is filed within one year of the date of enactment.

5. Interim treatment of certain amounts awarded to Christa McAuliffe Fellows

(sec. 336 of the House bill)

The Federal statute establishing the McAuliffe Fellowship Program did not include rules for the Federal income tax treatment of program awards. In general, nonscholarship awards to individuals are includible in the recipient's gross income.

6. Election by parent to claim unearned income of certain children

(sec. 733 of the Senate amendment)

7. Above-the-line deduction for jury pay that employee must surrender to employer

(sec. 755 of the Senate amendment)

8. Medical expense deduction for costs of service animals to assist handicapped individuals

(Senate amendment)

9. Medical expense deduction for certain radon mitigation costs

(sec. 800G of the Senate amendment)

The specified types of home improvements for mitigating radon gas exposure are: (1) sub-slab ventilation; (2) drain-tile ventilation; (3) block-wall ventilation; and (4) sump ventilation. In addition, Treasury regulations may provide that installation of air heat exchangers and air filtration systems as well as other techniques may be eligible for the deduction, if the taxpayer shows that one of the four specified techniques listed above failed to reduce the concentration of radon gas in the air of the residence to the recommended safe level.

10. Education savings bonds and modification of student dependency exemption

Taxation of interest accruals on U.S. Series EE savings bonds may be deferred by cash basis taxpayers as long as the bonds are not redeemed.

The exclusion is phased out for a taxpayer with AGI between $60,000 and $80,000, with 67% excluded between $60,000 and $70,000, and 34% excluded between $70,000 and $80,000. The exclusion is completely phased out for AGI above $80,000. For a taxpayer who is a dependent of another taxpayer, the phaseout is applied to the AGI of both taxpayers. The phaseout amounts are indexed in calendar years after 1988.

Transfer of savings bonds is made allowable for these purposes.

(Floor amendment, a. and b., above, by Senator Kennedy, adopted by 94-0.)

(Floor amendment by Senator Riegle, adopted by voice vote.)

11. Exclusion of gain on sale of principal residence by certain incapacitated taxpayers age 55

2. Treatment of certain trees

(sec. 800N of the Senate amendment)

3. Treatment of livestock sold on account of drought

(sec. 708 of the Senate amendment)

4. Treatment of certain pledged installment obligations

(sec. 341 of the House bill and sec. 753 of the Senate amendment)

5. Treatment of certain payments received as a result of crop losses due to drought conditions

(Senate amendment)

(sec. 710 of the Senate amendment)

2. Eligible deferred compensation plans: Modifications to section 457

(sec. 350 of the House bill and sec. 111(e)(11) of the Senate amendment)

3. Section 403(b) nondiscrimination rules and certain other pension provisions

(sec. 352(a) of the House bill and sec. 711 of the Senate amendment)

4. Required beginning date for public employees

(sec. 352(b) of the House bill and sec. 720 of the Senate amendment)

5. Limitations on contributions and benefits under qualified plans maintained by public employers

(sec. 352(c) of the House bill and section 716 of the Senate amendment)

6. Minimum participation rule

7. Permit IRA acquisitions of State-issued coins

(sec. 719 of the Senate amendment)

8. Application of pension funding rules to multiple employer plans

(sec. 721 of the Senate amendment)

9. Application of section 415 limits to police and firefighters

(sec. 800J of the Senate amendment)

In addition, present law provides a special floor on the annual limit on benefits with respect to certain police and firefighters. In the case of a qualified participant, the reduction provided for benefits payable before age 62 does not reduce the dollar limit on annual benefits below $50,000 at any age.

A qualified participant is a participant in a defined benefit pension plan maintained by a State or political subdivision of a State if the period of service taken into account in determining the participant's benefit under the plan includes at least 20 years of the participant's service as (1) a full-time employee of any police department or fire department that is organized and operated by the State or political subdivision of a State maintaining the plan to provide police protection, firefighting services, or emergency medical services for any area within the jurisdiction of that State or subdivision, or (2) a member of the Armed Forces of the United States.

10. Employee leasing safe harbor rule

(sec. 715 of the Senate amendment)

pension and employee benefit rules (sec. 414(n)). Under a safe-harbor rule, a service recipient is not required to maintain records with respect to leased employees if, among other things, less than 5 percent of the recipient's workforce are leased employees (determined in a simplified manner).

11. Air transportation of cargo and passengers treated as same service for purposes of fringe benefit inclusion

(sec. 353 of the House bill)

12. Excise tax on dispositions of stock by an ESOP not to apply to certain involuntary dispositions

(sec. 354 of the House bill and sec. 800G of the Senate amendment)

13. Exclusion of interest paid on refinanced ESOP loans

(sec. 800 of the Senate amendment)

14. Nondiscrimination rules for cafeteria plans

(sec. 800B of the Senate amendment)

15. Cash or deferred arrangements of railroad employees

(sec. 800Q of the Senate amendment)

A qualified cash or deferred arrangement (sec. 401(k)) is required to benefit a group of employees that satisfies the coverage tests.

16. Application of section 415 limits to collectively bargained plans

(sec. 800W of the Senate amendment)

Under the law prior to the 1986 Act, if benefits began before age 55, then the dollar limit was actuarially reduced so that it was the greater of (1) the actuarial equivalent of a $75,000 benefit beginning at age 55, or (2) the actuarial equivalent of the applicable dollar limit at age 62.

The 1986 Act eliminated the $75,000 floor so that the $90,000 limit is reduced for any one retiring before the social security retirement age (currently 65, scheduled to increase to 67).

In the case of a plan maintained pursuant to one or more collective bargaining agreements ratified before March 1, 1986, the 1986 Act provisions do not apply to benefits under such agreements in years beginning before the earlier of (1) the date on which the last of such collective bargaining agreements terminates, or (2) January 1, 1989.

17. Application of section 89 nondiscrimination rules to small employers

(sec. 800X of the Senate amendment)

Under present law, employees who normally work less than 17-1/2 hours per week are disregarded for purposes of the nondiscrimination rules.

18. Allocation of assets in case of plan spin-offs

(sec. 800Z of the Senate amendment)

The allocation rule also applies to a spin-off involving a plan maintained by a bank that has been closed by appropriate bank authorities and a plan maintained by a bridge bank (as described in 12 U.S.C. 1821(i)). The amendment also authorizes the bridge bank to cause the plan maintained by the closing bank to spin-off assets to a defined benefit plan maintained by the bridge bank in accordance with the allocation rule within 180 days after the closing of the bank.

(sec. 345 of the House bill)

2. Prepaid tax certificates

(sec. 349 of the House bill)

3. Phase-in of property and casualty insurance company discounting rules for certain hospital insurers

(sec. 758 of the Senate amendment)

4. Diversification requirements for variable contracts

(sec. 800Q of the Senate amendment)

(sec. 729 of Senate amendment)

Three categories of operations performed on a vehicle may be considered manufacturing under Treasury Department regulations. The first category involves additions or modifications to a chassis or body that change the transportation function of the vehicle. The second category involves fabrication of a usable truck from a wrecked vehicle. The third category pertains to a used vehicle on which repairs or other modifications are so extensive that they extent its useful life.

2. Reduced gasoline excise tax rate for gasohol blenders

(sec. 800A of the Senate amendment)

3. Application of annual distilled spirits occupational tax

4. Allow quarterly payment of excise tax on bows and arrows

(sec. 379 of the House bill)

5. Commencement date of oil Spill Liability Trust Fund and excise tax on petroleum

(sec. 384 of the House bill)

The trust fund and tax provisions were to have taken effect at the beginning of the first calendar month beginning more than 30 days after the enactment of a law before September 1, 1987, authorizing the oil spill liability program.

Since authorizing legislation was not enacted by September 1, 1987, the trust fund and tax provisions did not take effect.

6. Harbor maintenance tax to be imposed on certain Alaska, Hawaii or possessions cargo

(sec. 800Y of the Senate amendment)

Under regulations issued by the U.S. Customs Service, the user tax is assessed on any cargo loaded or unloaded at a U.S. port, unless otherwise exempted. Under present law and regulations, multiple taxation may occur on import and export discharged at a U.S. port for waterborne conveyance to another U.S. port on a different vessel.

No tax is imposed on cargo shipped between the U.S. mainland and Alaska, Hawaii, or a U.S. possession for ultimate use therein.

7. Study of cigarette excise tax and effects of smoking on health care costs; economic impact of tobacco excise taxes

(sec. 378 of the House bill and sec. 736 of the Senate amendment)

(sec. 358 of the House bill and sec. 744 of the Senate amendment)

2. Chain deficit rule for controlled foreign corporations

(sec. 746 of the Senate amendment)

3. Qualified possessions source investment income

(sec. 747 of the Senate amendment)

4. Banks organized in possessions

(sec. 749 of the Senate amendment)

5. Gambling winnings of nonresident aliens

(sec. 360 of the House bill)

6. Controlled foreign insurance corporations owned by U.S. persons

(sec. 797 of the Senate amendment).

7. Tax exemption for Enjebi Community Trust Fund

(sec. 383 of the House bill)

8. Cost-of-living allowances for judicial branch employees outside the U.S.

(sec. 759 of the Senate amendment)

9. Dividends paid by U.S. corporations

(sec. 112(g)(1)(B) of the Senate amendment)

10. Study on the definition of resident alien

(sec. 800N of the Senate amendment)

11. Bermuda and Barbados income tax treaties

(sec. 1013 of the Senate amendment)

(sec. 370 of the House bill and sec. 706 of the Senate amendment)

(sec. 362 of the House bill)

Transitional exception permits bonds issued before that date to be currently refunded after the date of enactment if the weighted average maturity of the refunded bonds is not increased and the amount of the refunding issue does not exceed the outstanding principal amount of the refunded bonds.

2. Extension of minimum period for calculating TRAN safe-harbor compliance

(sec. 363 of the House bill).

The bill further provides that the final rebate payment on TRAN issues having a maturity of less than six months will be due no earlier than eight months after the date of the issue.

3. Application of security interest test to bond financing of hazardous waste clean-up funds

(sec. 738 of the Senate amendment)

4. Tax-exempt financing for certain high-speed rail facilities

(sec. 739 of the Senate amendment)

Bonds for high-speed rail facilities generally receive the same treatment as bonds for airport facilities, with three exceptions. First, the facilities financed with such bonds need not be governmentally owned. (However, any private owner must make an irrevocable election not to claim depreciation or any tax credit with respect to any bond financed property). Second, 25% of the bonds issued for high-speed rail facilities must receive State private activity volume cap allocation. Third, any proceeds not spent within three years of the date of issue must be used to redeem outstanding bonds.

5. Clarification of Treasury Department arbitrage rebate regulatory authority with respect to governmental bonds

(sec. 363(b) of the House bill)

6. Application of arbitrage rebate requirement to bona fide debt service funds

(sec. 364 of the House bill and sec. 740 of the Senate amendment)

7. Certain volunteer fire departments to qualify for tax-exempt financing

(sec. 365 of the House bill)

The Treasury Department ruling position is that land may not be financed with these tax-exempt bonds, even though the land is functionally related and subordinate to a firehouse being financed.

The bill also clarifies that a reasonable amount of land that is functionally and related to a firehouse qualifying for tax-exempt financing may be financed with tax-exempt bonds as part of the acquisition or construction of the firehouse.

8. Disregard of pooled financings in determination of qualification for small-issuer exception

(Senate amendment)

Regardless of the ultimate borrower of the funds from a pooled financing, the bonds issued count towards the determination of whether the issuer qualifies as a small-issuer.

(sec. 724 of the Senate amendment)

2. Purchasing of insurance by tax-exempt hospital service organizations

(sec. 725 of the Senate amendment)

3. Determination of operating foundation status for certain purposes

(sec. 386 of the House bill)

4. Treatment of exempt-organization expenditures to influence the nomination or appointment of individuals to nonelective public office

(Senate amendment)

The provision does not modify existing limitations on political campaign activities applicable to various types of section 501(c) organizations, such as the prohibition on political campaign activities by section 501(c)(3) charitable organizations, or existing limitations on lobbying activities of such organizations. Also, the provision does not affect the definition of lobbying for purposes of such limitations.

5. Discharge of indebtedness income of rural mutual or cooperative utility companies

(sec. 386 of the House bill and sec. 707 of the Senate amendment)

(sec. 764 of the Senate amendment)

2. Procedures involving taxpayer interviews

(sec. 765 of the Senate amendment)

3. Advice of the IRS

(sec. 766 of the Senate amendment)

4. Taxpayer assistance orders

(sec. 767 of the Senate amendment)

5. Office of Inspector General

(sec. 768 of the Senate amendment)

6. Evaluation of IRS employees

(sec. 769 of the Senate amendment)

7. Procedures relating to IRS regulations

(sec. 770 of the Senate amendment)

8. Content of tax due and deficiency notices

(sec. 771 of the Senate amendment)

9. Installment payment of tax liability

(sec. 772 of the Senate amendment)

10. Assistant Commissioner for Taxpayer Services

(sec. 773 of the Senate amendment)

11. Levy and distraint

(sec. 774 of the Senate amendment)

The notice preceding levy must contain a description of Code provisions and administrative procedures applicable to specific aspects of collection.

Banks and other financial institutions are required to hold accounts garnished by the IRS for 21 days after receiving the IRS notice of levy, in order to give taxpayers an opportunity to notify the IRS of errors with respect to seizures.

12. Review of jeopardy levy and assessment procedures

(sec. 775 of the Senate amendment)

13. Administrative appeal of liens

(sec. 776 of the Senate amendment)

14. Awarding of costs and certain fees in administrative and court proceedings

(sec. 777 of the Senate amendment)

Administrative decisions concerning such costs would be appealable to the Tax Court.

15. Civil cause of action for damages due to failure to release lien

(sec. 778 of the Senate amendment)

16. Civil cause of action for damages sustained due to unreasonable actions by IRS

(sec. 779 of the Senate amendment)

17. Jurisdiction to restrain certain premature assessments

(sec. 780 of the Senate amendment)

18. Jurisdiction to enforce overpayment determinations

(sec. 781 of the Senate amendment)

In addition, if the IRS fails to establish that its delay was substantially justified, then the taxpayer is entitled to interest on the overpayment at an increased rate and to reasonable litigation costs.

19. Jurisdiction to review certain sales of seized property

(sec. 782 of the Senate amendment)

If the taxpayer wishes to contest an IRS determination to sell seized property, the only recourse is to bring suit in Federal district court.

20. Jurisdiction to redetermine interest on deficiencies

(sec. 783 of the Senate amendment)

21. Jurisdiction to modify decisions in certain estate tax cases

(sec. 784 of the Senate amendment)

22. Refund jurisdiction for the Tax Court

(sec. 785 of the Senate amendment)

All proceedings in the Tax Court would be stayed for 180 days if a refund action is filed in the Tax Court and there is a showing by the IRS that there has been no audit of the taxpayer's return for the period or type of tax involved in the refund action. The general prerequisites governing the commencement of tax refund actions would apply to refund actions filed in the Tax Court.

A taxpayer continues to have the option of filing a claim for refund in the appropriate Federal district court or the United States Claims Court.

(House bill)

These Treasury regulations provide that this allocation may be made by the employer in either of two ways. One is to allocate based on the portion of the gross receipts of the establishment attributable to the employee during a payroll period. The second is to allocate based on the portion of the total number of hours worked in the establishment attributable to the employee during a payroll period.

The method of tip allocation based on the number of hours worked may be utilized only by an establishment that employs less than the equivalent of 25 full-time employees during a payroll period. Establishments employing the equivalent of 25 or more full-time employees consequently have to use the portion of gross receipts method to allocate tips during the payroll period (absent an agreement between the employer and employees).

2. Provisions relating to previously required studies

(sec. 393 of the House bill)

3. Repeal of Treasury authority to prescribe class lives

(sec. 798 of the Senate amendment)

4. Repeal of reporting requirements for windfall profit tax

(sec. 208 of the Senate amendment)

(Floor amendment by Sen. Nickles, adopted by voice vote.)

(sec. 385 of the House bill)

2. Certain ownership changes not counted during bankruptcy

(sec. 741 of the Senate amendment)

3. Application of Code sec. 7503 for purposes of Woods Investment Co. effective date

(sec. 388 of the House bill)

Where the last day required by the tax laws to perform an act is a Saturday, Sunday or legal holiday, the act will be considered timely if it is performed on the next day that is not a Saturday, Sunday or legal holiday. It is not clear whether or to what extent this provision applies to the requirement that the disposition required for transition relief from the provision in the Revenue Act of 1987 which reverses the result in Woods Investment Co. must occur prior to January 1, 1989.

4. Application of rules on personal holding company income to broker-dealers

(sec. 743 of the Senate amendment)

5. Elimination of dividends received from banks from personal holding company income of bank holding companies

(sec. 392 of the House bill)

6. Substantiation of certain charitable contributions of inventory property by corporations

(sec. 880E of the Senate amendment)

7. Relief from recognition of corporate level gain involving transfer of residential cooperative units

(sec. 8001 of the Senate amendment)

(sec. 742 of the Senate amendment)

2. Certain discharge of debt income not included in book income

(sec. 391 of the House bill)

3. Carryover of nonconventional fuels credit under the minimum tax

(sec. 750 of the Senate amendment)

4. Treatment of certain corporations that are engaged in the sale of residential lots and timeshares for purposes of the alternative minimum tax

(Senate amendment)

For taxable years beginning after 1989, the alternative minimum taxable income of a corporation is increased by 75 percent of the excess of the adjusted current earnings of the corporation over the alternative minimum taxable income (determined before application of the adjusted current earnings provision). In determining adjusted current earnings, the installment method may not be used.

(Floor amendment by Sen. Gramm, adopted by voice vote.)

5. Exemption of certain religious schools from Federal unemployment tax

(sec. of the Senate amendment)

Floor amendment by Senator Thurmond, adopted by voice vote.)

6. Resolution relating to deductibility of adoption expenses

7. Status of certain dependent care providers

(Senate amendment)

The Secretary of Treasury shall report to the Senate Committee on Finance and the House Committee on Ways & Means on the tax status of day care providers compensated pursuant to the programs described above no later than December 31, 1989.

(sec. 734 of the Senate amendment)

2. Limitation on CBI ethanol imports

(sec. 761 of the Senate amendment)

3. Calculation of relative values for operations of petroleum refineries in a foreign trade zone

(Senate amendment)

4. Trade Act technicals

(sec. 800V of the Senate amendment)

5. Iraqi trade sanctions

(Senate amendment)

(sec. 314 of the House bill and sec. 700 of the Senate amendment)

2. Treatment of single premium and other investment-oriented life insurance contracts

(secs. 313 and 348 of the House bill and sec. 701 of the Senate amendment)

3. Repeal of special rules allowing loss transfers by Alaska Native Corporation

(sec. 315 of the House bill and sec. 702 of the Senate amendment)

4. Update IRS valuation tables

(sec. 371 of the House bill and sec. 704 of the Senate amendment)

(sec. 311 of the House bill)

(b) The requirement to qualify for an 80 percent dividends received deduction is changed to require ownership of more than 20 percent of the stock of a corporation.

(c) For purposes of determining whether the more than 20-percent threshold is met, the ownership of related corporations is aggregated to the same extent that it is aggregated under present law for purposes of the 80-percent threshold.

(d) The Treasury Department is directed to conduct a study of the dividends received deduction and provide any recommendations for legislative changes no later than 6 months following the date of enactment.

(b) The change in the threshold for the portfolio dividends received deduction applies to dividends received after December 31, 1988.

(c) The change in the aggregation rule applies to dividends received after December 31, 1987.

2. Repeal of the completed contract method of accounting for long-term contracts

(sec. 312 of the House bill)

Certain small businesses may use the completed contract method fully with respect to construction contracts that are estimated to be completed within two years. In addition, 40 percent of the items under certain qualified ship contracts may be reported under the percentage of completion method and the remaining 60 percent under the taxpayer's normal method of accounting (e.g., the completed contract method).

3. Insurance Provisions

4. Estate tax provisions

5. Tax-exempt bonds

(1) Borrower identification requirement

Written loan commitments are required with ultimate borrowers identifying with the governmental projects for which the proceeds will be used for at least 25 percent of the net proceeds of the issue, and it must be reasonably expected that the loans specified in those commitments will be made.

(2) Loan origination/bond redemption requirement

(i) Specified percentages of proceeds must be used to make loans within 1-, 2-, and 3-years after issuance.

(ii) Shortfalls in loan origination as of the three dates and loan repayments must be used to redeem bonds within 6 months.

(i) Treasury Department regulations permit issuers of pooled financing bonds generally to earn arbitrage profits on their "program" investments of 1.5 percentage points over the rate paid on the underlying bonds.

(ii) The Department of Education pays a special interest subsidy on student notes financed with proceeds of student loan bonds issued in connection with the Federal GSL program. Under present Treasury Department regulation, these special allowance payments ("SAP" payments) are not included in determining the amount of arbitrage earned on student notes.

(ii) For Federally guaranteed student loan bonds, SAP payments are included in calculating permitted arbitrage profits on student notes.

(ii) No provision.

Tax-exempt bonds may be used to provide rental housing owned and operated by private, for-profit persons and by sec. 501(c)(3) organizations. Sec. 501(c)(3) organizations are not subject to low-income tenant occupancy requirements that apply to for-profit developers.

Governmental bonds also may be used to finance rental housing. No special restrictions apply to rental housing financed with governmental bonds.

Rental housing located outside the issuer's jurisdiction is treated as a nonpurpose investment subject to yield restrictions and rebate requirement under the Code arbitrage rules.

6. Excise tax provisions

7. Increase in penalty for bad checks

(sec. 382 of the House bill)

8. Pension reversions of qualified plan assets: temporary increase in excise tax

(sec. 799 of the Senate amendment)

In addition, the increased tax does not apply if a final order directing plan termination was entered by a court of competent jurisdiction and notice of such court-ordered termination was provided to participants before July 27, 1988.

9. Denial of deduction for certain residential telephone service

(sec. 337 of the House bill)

The provision does not affect the deductibility of charges for long-distance calls, nor does it affect the deductibility of charges for equipment rental, optional services offered by the telephone company (e.g., call waiting or call forwarding) or charges attributable to additional telephone lines to a taxpayer's residence other than the first telephone line.

10. Information reporting by partnerships with tax-exempt partners

(Senate amendment)

If a partnership in which an exempt organization is a partner regularly carries on a trade or business that would constitute an unrelated trade or business if directly carried on by the exempt organization, the organization generally must include its share of the partnership's income from such income business in computing its UBIT liability; also, special rules apply where the organization is a partner in a publicly traded partnership. However, present law does not require partnerships in which exempt organizations are partners to report specifically that portion of the organization's distributive share of partnership income that is subject to the UBIT.

11. Options subject to wash sale rules

(Senate amendment)

(2) Tax rates.--Railroad employers pay a uniform tax of 8 percent of the compensation base to support the railroad unemployment program. (The uniform rate can vary from year to year in a range of 0.5 to 8 percent but has been at 8 percent since January 1, 1981.)

(3) Commuter railroads pay unemployment taxes on the same basis as other railroads.

(4) The administrative costs of the program are financed by a tax of 0.5 percent.

(5) In addition to other taxes, railroads now pay a special tax designed to repay the borrowings of the unemployment program from the railroad retirement program. This tax is 6 percent in 1988, 2.9 percent in 1989, and 3.2 percent in January-September of 1990. It expires at that time.

(6) If there is any further borrowing by the unemployment program from the retirement program, a surtax of 3.5 percent would automatically go into effect. The surtax is not currently in effect.

(7) Present law has no waiting period for railroad unemployment benefits.

(8) Unemployment benefits are payable at a rate of $25 per day.

(9) To qualify for unemployment benefits, an individual must have earned at least $1,500 in creditable wages in the base year. (This is the equivalent of 2.5 months under the present law compensation base of $600, and thus requires employment in at least 3 months of the base year.)

(7) H.R. 2167 provides for 9-day waiting period.

(9) H.R. 2167 requires approximately 6 months of qualifying employment in the base year.

(2) Tax rates.--The tax rate will remain at 8 percent through 1990. Starting with 1991, the tax rate will begin to be based on an experience rating formula under which tax rates vary among employers according to the amount of benefits that have been paid to their employees. The experience rating system becomes fully effective starting in 1993. The computation of each employer's tax liability will be adjusted to cover benefit costs which cannot be allocated to individual employers or which are not fully covered because of an overall 12 to 12.5 percent cap on individual employer rates. Employers will be afforded an opportunity to appeal the award of benefits to their employees.

(3) For 1989 and 1990, public commuter railroads will be exempt from paying the 8 percent tax and will instead reimburse the unemployment system for the amount of benefits paid during the year to their employees. Starting in 1991, those railroads will again pay taxes on the same basis as other railroads.

(4) The tax to cover administrative costs is increased from 0.5 percent to 0.65 percent.

(5) The rate of the repayment tax is changed to 4 percent effective with 1989 and it stays in effect until all borrowing by the railroad unemployment system from the railroad retirement system prior to October 1, 1985 has been repaid with interest.

(6) The present law contingent surtax of 3.5 percent is eliminated starting in 1991. Instead, there will be a surcharge added to employers' unemployment taxes whenever the balance in the unemployment account as of the previous June 30 is less than $100 million. The surcharge rate will range from 1.5 to 3.5 percent depending on how low the balance has fallen.

(7) No benefits will be payable during the first 2-week registration period each year in which the individual has more than four days of unemployment. A similar rule will apply to sickness benefits. In effect, this provision represents a 2-week waiting period for unemployment and sickness benefits.

(8) Effective July 1, 1988, the daily unemployment benefit rate is increased to $30. Starting in July of 1989, this amount will be indexed by 2/3 of the growth of wages in the general economy using the same index that is used to increase the social security taxable wage base.

(9) The $1,500 base year earnings requirement is changed to a requirement of 2.5 times the indexed compensation amount. This has the effect of continuing to require employment in at least 3 months of the base year.

(2) Railroad retirement benefits (including spouses benefits) are not payable for months in which the retiree works for his or her last non-railroad employer.

(3) Disability annuitants lose benefits for any month in which they have earnings of more than $200 for the month and more than $2,400 for the year.

(4) Military service credit is given under the railroad retirement system to certain individuals previously in rail employment if their military service occurred in a war period. The period of June 15, 1948 to December 15, 1950 is not considered a war period.

(2) The "last person service" rule is eliminated. Instead, tier II benefits are reduced by 50 percent of any earnings from the individual's last non-railroad employer. The total reduction in tier II plus supplemental benefits can not be more than 50 percent.

(3) The earnings limit on disability annuities is increased to $400 for the month and $4,800 for the year. In determining these amounts, disability related work expenses are excluded.

The June 15, 1948 to December 15, 1950 period is added to what is considered to be a war period in the case of individuals who returned to railroad employment in the year in which their military service ended or in the following year.

(2) The Comptroller General is directed to conduct a study to determine the extent and impact of fraud and payment error in the railroad unemployment program. The report is due not later than one year after date of enactment.