Description of Changes Made to the JOBS Act Under Two Managers' Amendments
From: Finance Committee Staff
Date: May 12, 2004
Re: Grassley-Baucus Manager Amendment Changes to the FSC Bill on May 11, 2004
This memo describes changes made on May 11, 2004, to S. 1637 after the second complete substitute of the bill was filed in April 2004. In addition to the provisions described below, staff made a number of technical and conforming changes. The bill remains fully offset.
Senate Amendment Number 3133
• Section 163(j) Deductibility of Arm’s length borrowing costs. Under current law, ifthe U.S. subsidiary of a foreign parent corporation borrows money from an unrelatedparty and the foreign parent .corporation guarantees the indebtedness, the subsidiary’soverall debt levels are closely scrutinized and the interest deduction on its borrowing maybe limited. This provision provides a limited carve-out for any U.S. subsidiary thatproves it could have borrowed the money without its parent corporation’s guarantee.
• Private Debt Collection. Amends the provision to require (i) that all service contractsexpire within five years of the date of enactment, (ii) a biennial report to Congress whichincludes a complete cost benefit analysis, impact on collection enforcement staff levels;dollars collected, cost incurred (indirect and direct), evaluations of contractorperformance, 6103 disclosure safeguard report, and a measurement plan, and (iii) that anamount not in excess of 25% of the private debt collector collections be used forpurposes of increased IRS enforcement.
• Section 501(c)(15). Under current law, a property and casualty insurance company iseligible to be exempt from Federal income tax if (a) its gross receipts for the taxable yeardo not exceed $600,000, and (b) the premiums received for the taxable year are greaterthan 50 percent of its gross receipts. The provision increases the 50 percent of grossreceipts threshold to 60 percent of gross receipts. Also under current law, a property andcasualty insurance company may elect to be taxed only on taxable investment income ifits written premiums do not exceed $1.2 million. The provision increases the $1.2million limit to $1.89 million and indexes it for inflation after 2005.
• Intellectual Property and Patents Donation Modification. The proposal modifies thedonation of intellectual property and patents provision in the underlying bill, so that adonor is able to claim the lesser of $1 million or 5% of fair market value for donations ofintellectual property or patents in the year the contribution is made. In subsequent yearsdonors would be able to deduct additional contribution amounts based on a percentage ofincome received by the donee. Originally, the proposal limited a donor’s deduction tobasis. The proposal also directs the IRS to develop appraisal standards and requiresdonors to pay a processing fee equal to 1% of the deduction.
• Rehabilitation Tax Credit. Strikes the provision in the bill that repeals the 10% rehabilitation tax credit.
• Captioning Credit. The provision provides a 50% tax credit to businesses for costsincurred in captioning movies in order to make them accessible to the deaf and hard ofhearing. The credit may be provided to producers or distributors of movies, as well asthose in the business of showing movies (movie theaters).
• Civil Rights Tax Fairness. Proposal expands the Civil Rights Tax Fairness Act toensure that attorneys fees related to suits under the Medicare as Secondary Payer statute(42 U.S.C. §1395y(b)(3)(A)) are deductible for purposes of computing gross income.
• Below Market Interest on Loans. Repeals the application of the below-market loanrules to loans that are made to any qualified continuing care facility pursuant to acontinuing care contract. The provision also clarifies that the determination of whether afacility is a qualified continuing care facility is to be made on an annual basis. Theprovision would also provide Treasury with authority to issue limiting guidance on thedefinition of continuing care contracts.
• Section 6404(g). Repeals the suspension on the accrual of interest normally effective 18months after filing and lasting until notice of assessment for certain tax-motivatedtransactions that are determined to be (i) listed transactions or (ii) reportable avoidancetransactions, as those terms are defined for purposes of the tax shelter legislation includedin the underlying bill.
• TVA. The amendment clarifies that TVA is included in the class of tradeable credits inboth section 45 and clean coal.
• Credit for Qualifying Pollution Control Equipment. This amendment allows aqualifying ethanol facility to claim an investment credit equal to 15% of basis ofqualifying pollution control equipment. Among other things, pollution control equipmentmeans technology installed to reduce air emissions regulated by the EPA to includethermal oxidizers, regenerative thermal oxidizers, scrubbers systems, evaporative controlsystems and vapor recovery systems.
Senate Amendment Number 3143
• Films modifications. Currently the bill provides that the manufacturing deduction withrespect to films is to be calculated on a “product line-by-product line” basis. Theamendment clarifies the rules for determining the manufacturing deduction on this basis.In addition, the bill makes two changes to the manufacturing deduction with respect tofilms. Currently, the bill provides that manufacturing gross receipts are receipts from thesale, exchange, disposition, lease, rental, or license of domestically manufacturedproperty. The amendment adds to this definition receipts from the “use of” manufacturedproperty with respect to films. Films subject to this “use of” clause are also excludedfrom the definition of topical or transitory property (which is generally not eligible forthe manufacturing deduction).
• Green Bonds. The amendment modifies the building rating system in the Green Bondsproposal by revising the criteria used to award LEED certification points for the use ofwood products, renewable wood products, and composite wood products. Specifically,points are awarded for wood products certified under the Sustainable Forestry InitiativeProgram and the American Tree Farm System, renewable wood products credited forLEED certification recycled content, and composite wood products certified understandards established by the American National Standards Institute or such othervoluntary standards as published in the Federal Register by the Administrator of theEnvironmental Protection Agency.
• Virgin Islands revenue raiser. The Allard green bonds amendment included a revenueraiser requiring U.S. citizens who become Virgin Islands residents to file informationreturns with the IRS for two years after they became Virgin Islands residents. It alsostrengthened the test for determining residency. This amendment alters the informationfiling aspect of the provision, requiring Virgin Islands residents to file U.S. informationreturns indefinitely.
• AMT Relief. The provision allows taxpayers to increase their alternative minimum taxcredit in lieu of claiming bonus depreciation. Certain taxpayers that are makingextensive capital investments are not subject to regular income tax because of continuingnet operating losses. These same taxpayers may be subject alternative minimum tax(AMT). AMT can be caused by depreciation claimed on new asset acquisitions. Thisprovision allows taxpayers to increase their AMT limitation on credit for prior yearminimum tax liabilities in lieu of claiming bonus depreciation. The present provision iscapped for bonus depreciation up to $10 million. This provision increases thedepreciation cap to $25 million.
• Precious Metals. Under current law, the net capital gain income attributable to the saleor exchange of collectibles is taxed at a maximum rate of 28 percent. The definition ofcollectibles includes any metal or coin. The amendment would remove gold, silver,platinum and palladium coin or bullion from the list of collectible items for cap gains.This would allow these precious metals to be taxed at the preferential maximum capitalgain tax rates.
• Sickle Cell. The provision adds as an optional benefit to the Medicaid program primaryand secondary medical strategies and treatment for individuals with sickle cell disease.
• Contract Manufacturing. Under current law, deferral of taxation is allowed for activeoffshore business activities. If, however, the offshore activity involves the purchase andresale of goods to or on behalf of a related party, then the foreign income is taxedcurrently. The issue presented is whether manufacturing conducted on behalf of aforeign subsidiary of a U.S. corporation constitutes an active business activity. Theprovision in the bill codifies a view announced by the IRS in 1997. Because the IRSposition is under review and may not be sustained under current case law, this changeaccepts Sen. Kyl’s amendment to strike the contract manufacturing provision in theunderlying bill.
• Buy America. The proposal requires a report from the head of each executive agency toreport on the articles purchase by those agencies which are manufactured outside theUnited States. The Commerce Department will report on the articles purchased byforeign governments which are made in the United States.
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