Summary of House-Senate Agreement on Tax, Trade, Health, and Other Provisions
Summary of House-Senate Agreement on
Tax, Trade, Health, and Other Provisions
DIVISION A - Extensions and Expansion of Certain Tax Relief Provisions, and Other Tax Provisions
Title I. Extensions and Modification of Certain Provisions
Sec. 101. Deduction for qualified tuition and related expenses. The Economic Growth and Tax Relief Reconciliation Act of 2001 created an above-the-line tax deduction for qualified higher education expenses (defined in the same manner as the HOPE and Lifetime Learning credits). For tax year 2005, the maximum deduction was $4,000 for taxpayers with AGI of $65,000 or less ($130,000 for joint returns) or $2,000 for taxpayers with AGI of $80,000 or less ($160,000 for joint returns). The provision extends the deduction to taxable years beginning in 2006 and 2007. The estimated cost is $3.3 billion for five and ten years.
Sec. 102. Extension and modification of new markets tax credit. Present law provides a new markets tax credit for taxpayers who hold a qualified equity investment on a credit allowance date. The provision extends the new markets tax for one additional year (through the end of 2008), permitting a $3.5 billion maximum annual amount of qualified equity investments. The provision also requires that the Secretary prescribe regulations to ensure that non-metropolitan counties receive a proportional allocation of qualified entity investments. The effective date is the date of enactment. The estimated cost is $637 million over five years and $1.3 billion over ten years.
Sec. 103. Election to deduct State and local general sales taxes. The American Jobs Creation Act of 2004 (“AJCA”) provided that a taxpayer may elect to take an itemized deduction for State and local general sales taxes in lieu of the itemized deduction permitted for State and local income taxes for tax years 2004 and 2005. Taxpayers were given two options for determining deductible sales tax: (1) actual sales tax paid if receipts are maintained for IRS verification; or (2) approximate sales tax paid as estimated in tables provided by the Secretary of the Treasury plus sales taxes paid on major purchases, such as a boat or car. This provision extends the election to taxable years beginning after December 31, 2005, and expires December 31, 2007. The estimated cost is $5.5 billion over five years and ten years.
Sec. 104. Extension and modification of research credit. In general, the law provides a research tax credit equal to 20 percent of the amount by which a taxpayer’s qualified research expenses for a taxable year exceed its base amount for that year. The provision extends the research credit for qualified amounts paid or incurred in 2006 and 2007. The provision also enhances the credit for portions of tax years that are in 2007 by (1) increasing the rates of the alternative incremental credit; and (2) creating a new alternative simplified credit that does not use a gross receipts factor. The estimated cost is $16.3 billion over five years and $16.5 billion over ten years.
Sec. 105. Work opportunity tax credit and welfare-to-work credit. The provision extends the WOTC and WTW credits for an additional two years (to include wages paid or incurred for individuals beginning work after December 31, 2005, and before January 1, 2008). For wages paid or incurred for individuals who begin work for the employer after December 31, 2006, the provision combines the two credits, expands eligibility for WOTC by raising the age ceiling for food stamp recipients from 25 to 40, eliminates the WOTC family income restrictions for ex-felons, and extends the paperwork filing deadline from 21 days to 28 days. The estimated cost is $979 million over five years and $1.002 billion over ten years.
Sec. 106. Election to include combat pay as earned income for purposes of earned income credit. Present law allows the use of combat pay in earned income for purposes of calculating the earned income tax credit. The provision extends this provision for one year (for taxable years ending before January 1, 2008). The estimated cost is $12 million over five and ten years.
Sec. 107. Extension and modification of qualified zone academy bonds. Qualified zone academy bonds (QZABs) are an alternative to traditional tax-exempt bonds. State and local governments are authorized to issue QZABs for purposes of financing renovation, equipment purchases, developing course material, and training teachers and personnel at a qualified zone academy. In general, a qualified zone academy is any public school (or academic program within a public school) below college level that is designed in cooperation with businesses to enhance the academic curriculum and increase graduation and employment rates and such public school is located in an empowerment zone or enterprise community. The QZABs offer the holder a federal tax credit instead of interest (there has been an allocation of $400 million of QZABs each year since 1998). The QZABs program expired on December 31, 2005. This provision allows another $400 million of issuing authority to state and local governments for 2006 and 2007 for qualified zone academy bonds. The provision also adds special rules relating to expenditures and arbitrage and adds a reporting requirement for issuers of QZABs. The provision is effective for bonds issued after December 31, 2005, and expires on December 31, 2007. The provision is estimated to cost $132 million over five years and $330 million over ten.
Sec. 108. Above-the-line deduction for certain expenses of elementary and secondary school teachers. The Job Creation and Worker Assistance Act of 2002 provided a $250 above-the-line deduction for teachers and other school professionals for expenses paid or incurred for books, supplies (other than non-athletic supplies for courses of instruction in health or physical education), computer equipment (including related software and services), other equipment, and supplementary materials used by the educator in the classroom. The provision extends the deduction for two years (to expenses paid or incurred in taxable years beginning during 2006 and 2007). The estimated cost is $379 million over five and ten years.
Sec. 109. Extension and expansion of expensing of brownfields remediation costs. The provision that permits expensing of costs associated with cleaning up hazardous (“brownfield”) sites expired on December 31, 2005. The provision would extend current law through the end of 2007. In addition, it provides that petroleum products may be treated as hazardous substances and permits the expensing of payments made or incurred during 2006 and 2007 to abate contamination related thereto. The estimated cost is $531 million over five years and $349 million over ten years.
Sec. 110. Tax incentives for investment in the District of Columbia. The Taxpayer Relief Act of 1997 designated certain economically depressed census tracts within the District of Columbia as the District of Columbia Enterprise Zone, within which businesses and individual residents are eligible for special tax incentives. The Taxpayer Relief Act of 1997 also provided a $5,000 first-time homebuyer credit for the District of Columbia. The zone designation and the first-time homebuyer credit expired December 31, 2005. The provision extends for two years (through 2007) the first-time homebuyer tax credit and four specific tax benefits available to businesses operating in designated DC enterprise zones (i.e., 20% wage credit; $35,000 of additional small business expensing; tax exempt bonds and zero capital gains for property held five years). The estimated cost is $150 million over five years and $392 million over ten years.
Sec. 111. Indian employment tax credit. The Omnibus Budget Reconciliation Act of 1993 created a business tax credit for the employer of qualified employees that work and live on or near an Indian reservation. The credit is for wages and health insurance costs paid to qualified employees (up to $20,000) in the current year over the amount paid in 1993. Wages for which the work opportunity tax credit is available are not qualified wages for the Indian employment tax credit. The Indian employment tax credit expired on December 31, 2005. The provision would extend the credit for two additional years (through the end of 2007). The estimated cost is $117 million over five and ten years.
Sec. 112. Accelerated depreciation for business property on Indian reservations. A special depreciation recovery period applies to qualified Indian reservation property placed in service before January 1, 2006. In general, qualified Indian reservation property is property used predominantly in the active conduct of a trade or business within an Indian reservation, which is not used outside the reservation on a regular basis and was not acquired from a related person. This provision extends the special depreciation for two additional years (to qualified Indian reservation property placed in service before January 1, 2008). This provision is estimated to cost $602 million over five years and $288 million over ten years.
Sec. 113. Fifteen-year straight-line cost recovery for qualified leasehold improvements and qualified restaurant property. In AJCA, Congress shortened the cost recovery of certain leasehold improvements and restaurant property from 39 to 15 years for the remainder of 2004 and 2005. The proposal extends this provision to property placed in service after December 31, 2005, and expires December 31, 2007. The estimated cost is $2.7 billion over five years and $5.2 billion over ten years.
Sec. 114. Cover over of tax on distilled spirits. The present law imposes a $13.50 per proof gallon excise tax on distilled spirits produced in or imported into the United States. The Code provides a payment to Puerto Rico and the Virgin Islands of the excise tax on rum imported into the United States. The payment is limited to $10.50 per proof gallon. This was increased to $13.25 per proof gallon during the period July 1, 1999 through December 31, 2005. The proposal extends the $13.25 per proof gallon provision to articles brought into the United States after December 31, 2005, and expires December 31, 2007. The estimated cost of the provision is $184 million over five and ten years.
Sec. 115. Parity in application of certain limits to mental health benefits. Group health plans that provide medical/surgical and mental health benefits cannot impose limits on mental health that are not imposed on health. There is a $100 excise per day for violations. The provision is scheduled to expire after December 31, 2006. The provision extends the present law excise tax effective on the date of enactment for one additional year (through December 31, 2007). The estimated cost of this provision is $35 million over five and ten years.
Sec. 116. Corporate donations of scientific property used for research and of computer technology and equipment. The proposal would extend a provision that encourages businesses to contribute computer equipment software to elementary, secondary, and post-secondary schools by allowing an enhanced deduction for such contributions. The provision would also allow equipment “assembled by” the donor to qualify for the enhanced deduction. This proposal extends the computer deduction provisions for contributions made during taxable years beginning after December 31, 2005, and expires December 31, 2007. The estimated cost is $275 million over five years and $280 million over ten years.
Sec. 117. Availability of Medical Savings Accounts. Medical Savings Accounts (or Archer MSA’s) allow favorable tax treatment of money saved for medical expenses by certain taxpayers covered by high-deductible health plans. This provision allows new contributions through December 31, 2007. The cost is negligible.
Sec. 118. Taxable income limit on percentage depletion for oil and natural gas produced from marginal properties. Taxpayers recover investments in oil and gas wells either through cost depletion or percentage depletion (depletion is like depreciation). Percentage depletion is only available to independent producers. Typically under percentage depletion, a taxpayer cannot deduct more than the income derived from the well in a given year. Congress suspended this 100% limitation for 1998 through 2005. The provision would extend the suspension of the 100% limitation for taxable years beginning in 2006 and 2007. The estimated cost is $176 million for five and ten years.
Sec. 119. American Samoa economic development credit. Certain domestic corporations operating in American Samoa were eligible for a possessions tax credit, which offset their U.S. tax liability on income earned in American Samoa from active business operations, sales of assets used in a business, or certain investments in American Samoa. Further, the credit was held to an economic activity-based limit, measuring the credit against wages, depreciation, and American Samoa income taxes. The credit expired December 31, 2005. The provision creates a temporary, two year credit for possessions corporations operating in American Samoa. The credit is generally based on the amount of wages paid in American Samoa and depreciation deductions with respect to property located in American Samoa, and is effective for the first two taxable years beginning after December 31, 2005 and before January 1, 2008. The provision is estimated to cost $25 million over five and ten years.
Sec. 120. Extension of bonus depreciation for certain qualified Gulf Opportunity Zone property. The provision extends the placed-in-service deadline for certain GO Zone property in specified portions of the GO Zone to qualify for bonus depreciation. The placed in service deadline is extended to December 31, 2010 for nonresidential real property or residential rental property. For such property, only the adjusted basis of such property attributable to manufacture, construction, or production before January 1, 2010 (“progress expenditures”) would qualify for bonus depreciation. The placed in service deadline is extended for personal property if substantially all the use of such property is in such building and such personal property is placed in service within 90 days of the date the building is placed in service. The specified portions of the GO Zone to which the provision applies are defined as those portions of the GO Zone which are in a county or parish which is identified as being a county or parish with damage to more than 60 percent of the housing units in the county or parish. The estimated cost is $539 million over five years and $465 million over ten years.
Sec. 121. Authority for undercover operations. Present law authorizes the IRS to use the proceeds from an undercover operation to pay additional expenses incurred in the undercover operation. The IRS must deposit any surpluses into the General Fund. The IRS is required to conduct a detailed financial audit of large undercover operations in which the IRS is churning funds and provide an annual audit report to the Congress on all such large undercover operations. The provision expires at the end of 2006. This proposal extends the provision to apply before January 1, 2008. This provision raises less than $500,000 over five and 10 years.
Sec. 122. Disclosures of certain tax return information. There are several provisions that allow IRS
to share information with other agencies. These provisions were most recently extended as part of the Katrina legislation through 2006. The proposal extends the provisions to requests made after December 31, 2006, and expires December 31, 2007. The provision has no revenue effect.
Sec. 123. Special rule for elections under expired provisions. The provision gives fiscal year taxpayers with tax years ending in 2006, but before date of enactment, an opportunity to change elections already made on their originally filed returns to take into account the extension of the provisions that expired at the end of 2005. The revenue effect is included in the revenue effect of the extension and modification of the research credit.
Title II. Energy Tax Provisions
Sec. 201. Credit for electricity produced from certain renewable resources (section 45). Provision extends placed-in-service date by one year (through December
31, 2008) for qualifying facilities: wind facilities; closed-loop biomass facilities; open loop biomass facilities; geothermal facilities; small irrigation power facilities; landfill gas facilities and trash combustion facilities; and qualified hydropower. Placed-in-service dates for solar facilities and refined coal facilities are not altered. Provision is generally effective on date of enactment. This provision is estimated to cost $1.069 billion over five years and $2.893 billion over 10 years.
Sec. 202. Credit to holders of clean renewable energy bonds. Provision adds additional $400 million to a category of tax credit bond called Clean Renewable Energy Bonds (“CREBs”). CREBs are defined as bond issued by qualified issuer if, in addition to other requirements, 95 percent of proceeds are used to finance capital expenditures incurred for facilities qualifying for tax credit under section 45. Qualified issuers include governmental bodies (including Indian tribal governments) and mutual or cooperative electric companies. Provision is effective for bonds issued after December 31, 2006. This provision is estimated to cost $73 million over five years and $174 million over 10 years.
Sec. 203. Performance standards for sulfur dioxide removal in advanced coal-based generation technology units designed to use subbituminous coal. Provision establishes an alternative measurement to achieve low sulfur dioxide emissions for advanced coal-based generation technology units designed to use sub-bituminous coal, for the investment tax credits for clean coal facilities established in the Energy Policy Act of 2005. Integrated gasification combined cycle (IGCC) projects get a 20 percent investment tax credit and other advanced coal-based projects that produce electricity get a 15 percent credit. The Secretary may allocate up to $800 million for IGCC projects and up to $500 million for other advanced coal-based technologies. This provision is has no revenue effect.
Sec. 204. Deduction for energy efficient commercial buildings. Provision extends for one year a deduction for energy efficient commercial buildings that reduce annual energy and power consumption by 50 percent compared to the American Society of Heating, Refrigerating, and Air Conditioning Engineers (ASHRAE) standard. The deduction would equal the cost of energy efficient property installed during construction, with a maximum deduction of $1.80 per square foot of the building. In addition, a partial deduction of 60 cents per square foot would be provided for building subsystems. This provision is estimated to cost $171 million over five years and $159 million over 10 years.
Sec. 205. Credit for new energy efficient homes. Provision extends for one year a credit to eligible contractor for construction of a qualified new energy-efficient home. Credit applies to manufactured homes meeting Energy Star Standards and other homes meeting a 50 percent standard. Credit applies
to homes which are purchased prior to January 1, 2009. This provision is estimated to cost $45 million over five years and $56 million over 10 years.
Sec. 206. Credit for residential energy efficient property. Provision extends for one year a credit, equal to 30 percent of qualifying expenditures, for purchase for qualified photovoltaic property and solar water heating property used exclusively for purposes other than heating swimming pools and hot tubs. Provision also provides a 30 percent credit for the purchase of qualified fuel cell power plants and applies to property placed prior to January 1, 2009. This provision is estimated to cost $37 million over five and 10 years.
Sec. 207. Energy credit. Provision extends for one year a 30 percent business energy credit for purchase of qualified fuel cell power plants for businesses and a 10 percent credit for purchase of qualifying stationary microturbine power plants. Additionally, a 30 percent credit for purchase of qualifying solar energy property is also extended. Credits apply to periods before January 1, 2009. This provision is estimated to cost $64 million over five years and $65 million over 10 years.
Sec. 208. Special rule for qualified methanol or ethanol fuel. Provision extends a reduced excise tax rate on methanol or ethanol fuel derived from coal (including peat). This provision is estimated to cost less than $500,000 over five and 10 years.
Sec. 209. Special depreciation allowance for cellulosic biomass ethanol plant property. Provision allows for 50 percent accelerated depreciation in the year a new cellulosic biomass ethanol facility is placed in service. Cellulosic biomass ethanol is defined as ethanol produced by enzymatic hydrolysis of any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis. Provision applies to facilities placed in service prior to January 1, 2013. This provision is estimated to cost $17 million over five years and $9 million over 10 years.
Sec. 210. Expenditures permitted from the Leaking Underground Storage Tank Trust Fund. Monies appropriated from the Leaking Underground Storage Tank (“LUST”) trust fund are used for detection, prevention, and cleanup of leaking underground storage tanks to reduce water pollution. The provision expands the purposes the LUST trust fund can be spent on protective and corrective measures for the national water supply. New purposes include: expanding corrective action in response to underground storage tanks petroleum releases; making funds available to carry out corrective actions for the release of MTBEs and other oxygenated fuel additive; requiring new tanks near community water systems to be secondarily contained; expanding inspections of underground storage tanks; implementing tank operator training requirements; expanding Federal and state enforcement efforts; improving prevention measures and compliance; and developing and implementing a strategy for addressing petroleum releases from tanks on tribal lands. This provision has no revenue effect.
Sec. 211. Treatment of coke and coke gas. Certain fuels produced from nonconventional sources and sold to unrelated parties are eligible for an income tax credit. Qualified fuels must be within the United States. The provision clarifies that petroleum coke, or pet coke, is not a qualifying product for purposes of the nonconventional production tax credit and eliminates the phase-out of the credit for facilities producing coke or coke gas. The provision is effective the date of enactment and is estimated to have no revenue effect.
Title III. Health Savings Accounts Sec. 301. Short title.
Sec. 302. FSA and HRA terminations to fund HSAs. The provision permits an employer to make a one-time transfer of the balance in an employee’s health reimbursement account (HRA) or flexible spending account (FSA) to an HSA. The maximum transfer is the lesser of the HRA or FSA balance on the date of transfer or September 21, 2006. Transfers must be made before January 1, 2012. If a high deductible plan is not maintained for at least 12 months following the transfer, the transferred amount is taxable as ordinary income and subject to a 10% excise tax. Any FSA balance remaining at the end of a year can be used up in the first 2 1⁄2 months of the following year (if the plan allows). Treasury has concluded that participation in an FSA that permits use of a balance for one year in the following year precludes contributions to an HSA for the first 2 1⁄2 months of the following year. This provision would permit contributions from January 1 if the FSA balance is zero or is transferred to an HSA. This provision costs $19 million over five years and $21 million over 10 years.
Sec. 303. Repeal of annual deductible limitation on HSA contributions. Current law allows HSA contributions of the lesser of the deductible or $2,700 ($5,450 family). The deductible amount must be at least $1,050 for single coverage and $2,100 for family coverage. The provision would allow a contribution of $2,700 for single coverage ($5,450 for family), even if the deductible is less than $2,700 ($5,450 family). This provision costs $121 million over five years and $712 million over 10 years.
Sec. 304. Modification of cost-of-living adjustment. Enrollment in employer-provided health plans usually takes place in November or early December. Currently, adjustments to HSA limits are not released until late in the year, making preparation of enrollment materials and advance planning difficult. The provision would require indexing of limits by June 1. The cost of this provision is negligible.
Sec. 305. Contribution limitation not reduced for part-year coverage. Currently the HSA contribution limit is prorated if coverage is less than 12 months, but the minimum deductible is not prorated. The provision allows a full year’s contribution to an HSA for partial year’s coverage, provided the taxpayer maintains the high deductible plan for at least 12 months. Failure to maintain the high deductible coverage for at least 12 months results in a loss of the deduction and a 10% penalty. The provision costs $147 million over five years and $302 million over 10 years.
Sec. 306. Exception to requirement for employers to make comparable health savings account contributions. Under current law, employers can contribute to HSAs on behalf of employees, but the contributions must be “comparable” for all employees. The provision would allow employers to provide additional contributions to lower-paid workers. The cost of this provision is negligible.
Sec. 307. One-time distribution from individual retirement plans to fund HSAs. Distributions from an IRA for medical expenses are taxable income (to the extent not a distribution of basis). Distributions from an HSA to pay medical expenses are not. This provision would allow those who cannot afford to fully fund an HSA with direct contributions to move IRA money to a more tax- advantaged position. The cost of this provision is negligible.
Title IV. Other Provisions
Sec. 401. Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico. The manufacturing deduction under Section 199 (as enacted in AJCA) allows a deduction from taxable income for up to 3% of domestic manufacturing income (gradually rising to 9% by 2009, which effectively lowers the corporate rate on manufacturing income to approximately 32%). Activities in Puerto Rico do not qualify. The provision expands this deduction to activities in Puerto Rico. The provision is effective for the first two taxable years beginning after December 31, 2005 and before January 1, 2008. The estimated cost is $162 million over five and ten years.
Sec. 402. Credit for prior year minimum tax liability made refundable after period of years. Incentive Stock Options (ISO’s) are granted by companies to workers at all levels, not just executives, and typically have a long term holding period of at least one year. The grant of these options, even before exercised, is subject to tax under the Alternative Minimum Tax at the value of the stock on the date the option was granted. A large number of taxpayers have been hit with AMT bills that far exceed income or the sale value of the stock. The provision allows certain taxpayers who have unused AMT credits to claim a refundable credit at 20% of the long-term unused AMT credits per year (up to $5,000) for the next five years. The refundable credit phases out for higher income taxpayers. The provision is effective for taxable years beginning after the date of enactment and sunsets on December 31, 2012. The estimated cost is $1.7 billion over five years and $51 million over ten years (which includes the revenue increase expected from the following provision).
Sec. 403. Returns required in connection with certain options. Present law requires that every corporation report transfers of stock pursuant to a person’s exercise of an incentive stock option or a transfer of legal title of a share of stock acquired by the transferor pursuant to the exercise of an option. The provision requires the corporation reporting the transfer to provide a statement to the person named in the information return. The provision is effective for calendar years beginning after the date of enactment.
Sec. 404. Partial expensing for advanced mine safety equipment. Present law generally provides that a taxpayer must capitalize the cost of property used in a trade or business and recover such cost over time through annual deductions for depreciation or amortization. The provision provides 50% immediate expensing for qualified underground mine safety equipment (that goes above and beyond current safety equipment requirements), including: (1) communications technology enabling miners to remain in constant contact with an individual above ground; (2) electronic tracking devices that enable an individual above ground to locate miners in the mine at all times; (3) self-contained self- rescue emergency breathing apparatuses carried by the miners and additional oxygen supplies stored in the mine; and (4) mine atmospheric monitoring equipment to measure levels of carbon monoxide, methane, and oxygen in the mine. This provision will encourage mining companies to invest in safety equipment that goes above and beyond current safety equipment requirements. The provision is effective for costs paid or incurred after the date of enactment and does not apply to property placed in service after December 31, 2008. The estimated cost is $17 million over five years and less than $1 million over ten years.
Sec. 405. Mine rescue team training tax credit. The provision provides a credit of up to $10,000 for training of mine rescue team members. This tax incentive is effective for taxable years beginning after December 31, 2005, and expires on December 31, 2008. The estimated cost is $4 million over five years and $9 million over ten years.
Sec. 406. Whistleblower reforms. Present law authorizes the IRS to pay such sums as deemed necessary for: (1) detecting underpayments of tax; and (2) detecting and bringing to trial and punishing persons guilty of violating the internal revenue laws or conniving at the same. Amounts are paid based on a percentage of the tax, fines, and penalties (but not interest) actually collected based on the information provided. The provision reforms the reward program for individuals who provide information regarding violations of the tax laws to the Secretary that involve an individual whose gross income exceeds $200,000 for any taxable year subject to such action and that involves tax, penalties, and interest of over $2 million. Generally, the provision establishes a reward floor of 15% and a cap of 30% of the collected proceeds (including penalties, interest, additions to tax and additional amounts) if the IRS moves forward with an administrative or judicial action based on information brought to the IRS’s attention by an individual. Under certain specified circumstances, the provision permits awards of lesser amounts. The provision allows an above-the-line deduction for attorneys’ fees and costs paid by, or on behalf of, the individual in connection with any award for providing information regarding violations of the tax laws. The provision allows the whistleblower to appeal the award determination with the Tax Court. The provision also creates a Whistleblower Office within the IRS to administer the reward program. The provision requires a yearly study and report by the Secretary of the Treasury. The provision is effective for information provided on or after the date of enactment. The provision is estimated to raise $32 million over five years and $182 million over ten years.
Sec. 407. Frivolous tax submissions. The provision modifies the IRS-imposed penalty by increasing the amount of the penalty from $500 to $5,000 and by applying it to all taxpayers and to all types of Federal taxes. The provision also modifies present law with respect to certain submissions that raise frivolous arguments or that are intended to delay or impede tax administration. The submissions to which the provision applies are requests for a collection due process hearing, installment agreements, offers-in-compromise, and taxpayer assistance orders. First, the provision permits the IRS to disregard such requests. Second, the provision permits the IRS to impose a penalty of up to $5,000 for such requests, unless the taxpayer withdraws the request after being given an opportunity to do so. The provision requires the IRS to publish a list of positions, arguments, requests, and submissions determined to be frivolous for purposes of these provisions. This provision is estimated to raise $15 million over five years and $30 million over 10 years.
Sec. 408. Addition of meningococcal and human papillomavirus vaccines to list of taxable vaccines. Certain vaccines are taxed at $0.75 per dose and the tax is put into the Vaccine Injury Compensation Trust Fund. The trust fund provides for payment of compensation for vaccine-related injury or death with respect to a taxable vaccine. This provision adds meningococcal and human papillomavirus vaccines to the list of taxable vaccines for purposes of the Vaccine Injury Compensation Trust Fund. This is effective one month after the date of enactment. This provision is estimated to raise $7 million over five and ten years.
Sec. 409. Clarification of taxation of certain settlement funds made permanent. The Tax Increase Prevention and Reconciliation Act of 2005 (“TIPRA”) provided that certain escrow accounts or settlement funds established before January 1, 2011 for resolving liability claims under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) are to be treated as beneficially owned by the U.S. government and therefore, not subject to Federal income tax. The provision makes this change permanent. The estimated cost is $2 million over five years and $45 million over ten years.
Sec. 410. Modification of active business definition under section 355 made permanent. Normally, corporations are taxed on distributions of property to shareholders as if sold at fair market value. However, section 355 of the tax code provides corporations with the flexibility to distribute one or more of their businesses to their shareholders, such as in a spin-off, without triggering tax consequences if the transaction meets important requirements. An exception is allowed only if both the distributing and distributed corporations continue to conduct an “active trade or business.” TIPRA simplified the active trade or business test by looking at all corporations in the distributing corporation’s and the distributed subsidiary’s respective affiliated group to determine if the active trade or business test is satisfied. The changes were set to expire after 2010. The provision makes the changes permanent. The estimated cost is $2 million over five years and $71 million over ten years.
Sec. 411. Revision of State veterans limit made permanent. Qualified veterans’ mortgage bonds are private activity bonds the proceeds of which are used to make mortgage loans to certain veterans. The five States eligible to issue these bonds are Alaska, California, Oregon, Texas, and Wisconsin. TIPRA revised eligibility requirements for veterans' mortgage bonds issued by the States of Alaska, Oregon, and Wisconsin to provide that veterans must apply for financing within 25 years of leaving active duty. In addition, the annual issuance volume limits on veterans' mortgage bonds for the States of Alaska, Oregon, and Wisconsin were changed and are to be phased in between the years 2006 and 2010. The veterans’ mortgage bonds issued by Texas and California were not amended. These changes were set to expire after 2010. The provision makes the TIPRA qualified veteran’s mortgage bond provision permanent. The estimated cost is less than $500,000 over five years and $19 million over ten years.
Sec. 412. Capital gains treatment for certain self-created musical works made permanent. TIPRA allowed for a taxpayer to elect to have the sale or exchange before January 1, 2011, of musical compositions or copyrights in musical works created by the taxpayer’s personal efforts (or having a basis determined by reference to the basis in the hands of the taxpayer whose personal efforts created the compositions or copyrights) to be treated as the sale or exchange of a capital asset. The changes were set to expire after 2010. The provision makes these changes permanent. The estimated cost is $3 million over five years and $29 million over ten years.
Sec. 413. Reduction in minimum vessel tonnage which qualifies for tonnage tax made permanent. Corporations that are qualifying vessel operators may elect a “tonnage tax” in lieu of the corporate tax on taxable income from certain foreign shipping activities. The tonnage tax was enacted to help U.S. vessel operators involved in international shipping be more competitive with foreign-flag ship operators. TIPRA lowered from 10,000 to 6,000 deadweight tons the limitation on vessels qualifying to elect into the tonnage tax regime. for taxable years beginning after December 31, 2005, and ending before January 1, 2011. The provision makes this change permanent. The estimated cost is $3 million over five years and $108 million over ten years.
Sec. 414. Modification of special arbitrage rule for certain funds made permanent. Under current law, issuers of tax exempt bonds are restricted as to the amount of arbitrage activity that they can engage in with their bond proceeds. The TIPRA extended and updated the grandfather exception from the arbitrage bond rules for certain permanent university funds. It is scheduled to sunset on August 31, 2009. The provision makes the arbitrage rule permanent. The estimated cost is $3 million over five years and $20 million over ten years.
Sec. 415. Great Lakes domestic shipping to not disqualify vessel from tonnage tax. Currently, if a vessel operates in the U.S. domestic trade for more than 30 days a year, it cannot qualify for the alternative tonnage tax regime for income from its operations in U.S. foreign trade. This means vessel operators in the Great Lakes generally do not qualify for the tonnage tax regime. The provision modifies the treatment of shipping within the Great Lakes to permit vessel operators in the region to qualify for the tonnage tax regime. The provision is effective for taxable years beginning after the date of enactment. The estimated cost is $20 million over five years and $52 million over ten years.
Sec. 416. Use of qualified mortgage bonds to finance residences for veterans without regard to first- time homebuyer requirement. States operate tax-exempt mortgage revenue bond programs to provide lower-income individuals access to mortgages with lower interest costs. Normally, only first-time homebuyers qualify. The provision allows veterans to have a second chance at being a first-time homebuyer. The provision is effective for bonds issued after date of enactment and before January 1, 2008. The estimated cost is $156 million over five years and $339 million over ten years.
Sec. 417. Exclusion of gain from sale of a principal residence by certain employees of the intelligence community. Current law provides an exclusion from capital gains tax for $250,000 from the sale of a primary residence ($500,000 for married couples). Taxpayers must have lived in the residence for at least two of the five years prior to the sale. Much like military service personnel and foreign service officers, intelligence officers who have been stationed overseas cannot always meet the residency requirement to avoid the capital gains tax. In 2003, Congress changed the law to permit military service personnel and foreign service officers to toll the five year period for up to 10 years while they are stationed 50 miles from home. This provision provides the same residency requirement exclusion offered to military service personnel to intelligence officers, except that it requires that the intelligence officers be stationed overseas. The provision is effective for sales and exchanges after the date of enactment through December 31, 2010. The estimated cost is $1 million over five and ten years.
Sec. 418. Sale of property by judicial officers. The provision extends to Federal judges the ability, currently available to executive branch employees, to elect to defer capital gains on property sold to avoid conflicts of interest to the extent the proceeds are reinvested in other permitted property. The provision is effective for divestitures after the date of enactment. The estimated cost is $1 million over five years and $3 million over ten years.
Sec. 419. Premiums for mortgage insurance. The provision establishes an itemized deduction for the cost of mortgage insurance on a qualified personal residence. The deduction is phased-out ratably by 10% for each $1,000 by which the taxpayer’s AGI exceeds $100,000. Thus, the deduction is unavailable for a taxpayer with an AGI in excess of $110,000. The provision is effective for amounts paid or accrued (and applicable to the period) after December 31, 2006 and before January 1, 2008 for mortgage contracts issued after December 31, 2006. The estimated cost is $91 million over five and ten years.
Sec. 420. Modification of refunds for kerosene used in aviation. The provision allows tax exempt users of fuel, such as crop dusters and air ambulances, to file for a refund or waive their right to claim the refund to the registered vendor. The provision is effective for kerosene sold before the date of enactment to ultimate purchasers at a price that included the tax imposed on such fuel and for which the amount of the tax has not been repaid or credited, and for fuel sold on or after the date of enactment. The provision is estimated to cost less than $500,000 for five and ten years.
Sec. 421. Regional income tax agencies treated as States for purposes of confidentiality and disclosure requirements. The provision allows a governmental organization composed of multiple municipalities with an aggregate population in excess of 250,000 to enter into agreements with the IRS to receive federal tax information to assist with tax administration. This provision has no revenue effect.
Sec. 422. Designation of wines by semi-generic names. The provision implements a trade agreement
with the European Union regarding the labeling of wine. This provision has no revenue effect.
Sec. 423 Modification of railroad track maintenance credit. Present law provides, subject to limitations, a tax credit equal to 50 percent of the “qualified railroad track maintenance expenditures” paid or incurred by eligible taxpayers including Class II and Class III railroads. The proposed provision modifies the definition of qualified railroad track maintenance expenditures to include gross expenditures. Under the provision, qualified railroad track maintenance expenditures should be determined without regard to any consideration for such expenditures given by the Class II or Class III railroad which assign the track for purposes of the credit. The provision would be effective as if included in the AJCA. The provision is expected to cost $49 million over five years and $49 million over 10 years.
Sec. 424. Modification of excise tax on unrelated business taxable income of charitable remainder trusts. The provision imposes a 100-percent excise tax on the unrelated business taxable income of a charitable remainder trust. This replaces the present-law rule that takes away the income tax exemption of a charitable remainder trust for any year in which the trust has any unrelated business taxable income. Consistent with present law, the tax is treated as paid from corpus. The unrelated business taxable income is considered income of the trust for purposes of determining the character of the distribution made to the beneficiary. This legislation was passed as part of the CARE Act by the Senate in 2003. The provision costs $23 million over five years and $62 million over 10 years.
Sec. 425. Loans to qualified continuing care facilities made permanent. The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) included legislation that reformed the treatment of loans by seniors to qualified continuing care facilities where they are residents. The provision in TIPRA expired after five years. This change makes the reform permanent. This provision costs $1 million over five years and $14 million over 10 years.
Sec. 426. Technical corrections.
a. Look-through treatment of payments between related controlled foreign corporations under the foreign personal holding company rules. Subpart F of the Code taxes on a current basis certain mobile income earned by foreign subsidiaries of U.S. persons. TIPRA created a new exception from Subpart F for certain payments between related foreign subsidiaries of U.S. persons. The provision conforms this new rule to its purpose of allowing U.S. companies to redeploy their active foreign earnings without an additional U.S. tax burden in appropriate circumstances. In order to qualify for this exception from Subpart F, a related party payment must not be attributable to income of the payor that is effectively connected with the conduct of a U.S. trade or business. The provision also clarifies Treasury’s regulatory authority. This provision has no revenue effect.
b. Technical Correction regarding authority to exercise reasonable cause and good faith exception. This provision clarifies H.R. 4440 (Gulf Opportunity Zone Act of 2005) Section 303 (a)(2)(B)(iii). As originally enacted in the GoZone bill, this section made retroactive a provision in AJCA that repealed interest suspension rules on tax shelter listed transactions and nondisclosed reportable transactions (i.e., the 18-month interest suspension rules do not apply to interest on tax deficiencies resulting from certain tax shelter transactions). The GoZone provision contained an exception to encourage taxpayers to elect into the Notice 2005-80 IRS global tax shelter settlement initiative (i.e., interest on those deficiencies would continue to be suspended for periods later than 18 months from the due date of the return, or the date of filing, whichever was later). It included a similar exception for taxpayers who acted reasonably and in good faith. Under the terms of the GoZone provision, only
the Secretary of the Treasury could determine whether taxpayers were acting reasonably and in good faith. The provision clarifies that the Secretary of the Treasury may delegate his authority to permit interest suspension where taxpayers have acted reasonably and in good faith. The provision has no revenue effect.
Title I – Medicare Improved Quality and Provider Payments
· 2007 Update for Medicare Physician Services: Provides a one year zero percent update for 2007. Establishes a quality reporting system for eligible professionals using consensus-based quality measures for 2007 beginning July 1, 2007 through December 31, 2007. Physicians and other eligible practitioners who submit data on quality measures will receive bonus incentive payments of 1.5 percent for covered services during that period. Establishes a fund to promote physician payment stability and physician quality improvement initiatives.
· Extension of expiring Medicare Modernization Act Provisions:
o Floor on Medicare Work Geographic Adjustment: Extends the 1.0 floor in the work geographic index for any locality for which the index is less than 1.0 established in the Medicare Modernization Act for services furnished from January 1, 2007 through December 31, 2007.
o Treatment of Physician Pathology Services: Extends direct payments for the technical component for certain pathology services permitted by the Medicare Modernization Act for services furnished during CY 07.
o Medicare Reasonable Costs for Rural Clinical Labs: Extends cost-based payments for clinical diagnostic laboratory tests covered under Part B for an additional year from July 1, 2006 through June 30, 2007.
o Medicare Wage Index: Extends certain area wage index reclassifications for an additional six months, requires study on Medicare wage index classification system and alternative methodologies to compute the wage index; and requires CMS to propose ways to revise the wage index classification system.
o Payments for Brachytherapy: Extends payment rule for brachytherapy devices at hospital’s charges adjusted to cost from January 1, 2007 through December 31, 2007 and requires CMS to establish separate groups for certain stranded and non-stranded devices as of July 1, 2007.
· Update for Dialysis Services: Increases the composite rate component of the current case-mix adjusted system for services beginning April 1, 2007 by 1.6 percent above the amount of the composite rate component for such services. Requires GAO to submit a report and recommendations to Congress on home dialysis treatment and payment by January 1, 2009.
· Payment Process under the Competitive Acquisition Program: Establishes a post-payment review process to assure that payment is made for a drug or biological only if the drug or biological is delivered for administration to a beneficiary.
· Quality Reporting for Hospital Outpatient Services and Ambulatory Surgery Center Services: Provides for a reduction in the hospital outpatient services fee schedule increase for hospitals that fail to provide the designated quality data as of January 1, 2009. Requires CMS to develop quality measures for hospital outpatient and ambulatory surgery center services.
· Reporting anemia quality indicators for cancer anti-anemia drugs: Requires physicians to report anemia quality indicators when administering cancer anti-anemia drugs.
Title II – Medicare Beneficiary Protections
· Therapy Caps: Provides for one-year extension of the therapy caps extensions policy established
in the Deficit Reduction Act.
· Payment for Administration of Part D Vaccines: Provides for payment under Part B in 2007 of the administration of a Part D covered vaccine. Beginning in 2008, includes administration of a Part D covered vaccine under Part D.
· OIG Study of “Never Events”: Requires Department of Health and Human Services Office of the Inspector General to a conduct study on Medicare payments for services related to events that should never happen to patients in hospitals (i.e., wrong site surgery) as defined by the National Quality Forum.
· Medicare Medical Home Demonstration Project: Establishes a three-year demonstration project to provide targeted, accessible, continuous, and coordinated care to high-need beneficiaries. Provides for care management fees and other incentive payments to physicians. Project will operate in no more than 8 states.
· Deficit Reduction Act (DRA) Technical Corrections: Makes technical clarifications to the DRA.
Title III – Medicare Program Integrity Efforts
· Adjustment in Medicare Advantage Stabilization Fund: Changes amount available in the Medicare Advantage stabilization fund to $3.5 billion and allows for those funds to be spent between January 1, 2012 and December 31, 2013.
· Expansion of Recovery Audit Contractor Program: Adopts Recovery Audit Contractor Demonstration as part of Medicare program and implements nationwide.
· Funding for Health Care Fraud and Abuse Control Account: Provides annual funding updates based on changes in the consumer price index from 2007 through 2010.
· Implementation Funding: Provides $45 million in FY 07 and 08 for purposes of implementing provisions included in and amendments made by this Title.
Title IV: Medicaid and Other Health Extender Provisions
Transitional Medical Assistance (TMA)/Abstinence Education: Provides TMA for two quarters beginning on January 1, 2007. TMA is the continuation of Medicaid benefits for up to 1 year for certain low-income families who would otherwise lose coverage because of changes in their income, due to increased hours of work or income from employment or due to child or spousal support. Provides funding for matching grants to states to provide abstinence education for two quarters beginning on January 1, 2007.
Medicaid Provider Tax Rate Codification: Codifies the maximum rate at which a state can tax its health care providers at the rate of 6 percent under the rules in effect on November 1, 2006. Beginning January 1, 2008 through Fiscal Year 2011, the rate would be temporarily reduced to 5.5 percent. After fiscal year 2011, the rate would increase to 6 percent again. The current maximum rate was expected to be reduced to 3 percent under an anticipated proposed rule. This provision will prevent the anticipated reduction from taking effect.
DRA Technical Corrections: Makes technical clarifications to the DRA.
Study and Recommendations on creating a uniform national database on elder abuse: Requires the Secretary of HHS, in consultation with the Attorney General, to conduct a study on establishing a uniform national database on elder abuse. (Note: This is Section 305 of Title III in Division C)
Division C - Other Provisions
Title I. Gulf of Mexico Energy Security
Outer Continental Shelf (OCS). The provision provides for opening more than 8.3 million acres on the outer Continental Shelf for oil and gas leasing. The provision calls for opening approximately 2.5 million as soon as practicable, but no later than one year of the date of enactment. It calls for opening an additional 5.8 million acres as soon as practicable. The provision also directs leasing in the 181 Area, excluding areas East of the Military Mission Line, areas in the New Eastern Gulf of Mexico Planning Area within 125 miles of the State of Florida, and areas in the New Central Gulf of Mexico Planning Area within 100 miles of the State of Florida. The provision also directs leasing in the 181 South Area, excluding areas East of the Military Mission Line, and areas east of the New Eastern Gulf of Mexico Planning Area. The provision directs the Secretary of the Interior to establish within one year of enactment a regulation that provides for an option to exchange leases in areas unavailable for leases within 125 miles of Florida coastline in New Eastern Gulf Planning Area for leases in areas available for leasing in the Gulf of Mexico. The provision provides for revenue sharing on new areas of production made available by this agreement and new leases beginning in FY 2007 and each fiscal year thereafter (181 Area above the CBO baseline and 181 South Area) and on new leases after date of enactment in existing planning areas beginning in FY 2016 and each fiscal year thereafter (Gulf of Mexico planning areas) as follows: 37.5 % to Gulf producing states, 12.5 % to Stateside LWCF, and 50 % to Federal Treasury. There is a $500 million annual net spending cap on revenue. “Net” means spending in excess of receipts coming in from new areas opened up under this bill.
Title II. Surface Mining Control and Reclamation Act Amendments of 2006
Surface Mining Control and Reclamation Act Amendments of 2006. The provision extends the AML program for fifteen years and ensures that reclamation funds collected from fees on coal production will be distributed to the states that have the most dangerous abandoned mine sites. Annual appropriations since the program’s inception have been severely limited due to ongoing budget constraints, but significant problems remain in many states that threaten the health and safety people who live near them. In addition, this legislation repays states the money they paid into the AML Fund. Each year, fees imposed on coal production are held in this fund and have not been fully redistributed. The provision also requires annual transfers of AML Fund interest to pay for the health benefits of orphan beneficiaries in the Combined Benefit Fund, and the 1992 and 1993 plans. In addition, coal receipts received through the Mineral Leasing Act will be used as needed to pay for any benefits not covered by the AML Fund interest. This provision addresses the problem of the current structure for financing orphan benefits, which is no longer sustainable because of the declining number of contributing employers.
Title III. Other Provisions
Sec. 301. Tobacco personal use quantity exception to not apply to delivery sales. The provision amends the Imported Cigarette Compliance Act (ICCA) by (1) extending the ICCA’s provisions to cover smokeless tobacco products, (2) clarifying that, under current law, the personal use exemption does not apply to any cigarettes or smokeless tobacco products sold in connection with a delivery sale, and (3) authorizing State attorneys general to obtain copies of any certifications required under the ICCA. The provision raises $4 million over five years and $9 million over 10 years.
Sec. 302. Ethanol Tariff Schedule. Provision extends a 54-cent-per-gallon tariff on imported ethanol. Provision applies to imported ethanol through January 1, 2009. This provision is estimated to raise $16 million over five and 10 years.
Sec. 303. Withdrawal of certain Federal land and interests in certain Federal land from location, entry, and patent under the mining laws and disposition under the mineral and geothermal leasing laws. The provision excludes from income 25 percent of any long-term capital gain recognized upon sale of the taxpayer's entire interest in a mineral or geothermal deposit that is located on certain Federal land. To qualify, the sale must be to a government or to a section 501(c)(3) conservation organization. The provision would make permanent current government policy not to issue any new oil and gas leases on the Forest Service and BLM land south of the Glacier National Park. Over the last 50 years, the Forest Service and BLM have issued 60 leases for oil and gas development in this area. However, none of these leases is currently producing. The issuance of future leases has been administratively suspended and the provision would make permanent the current Federal moratorium. This provision is estimated to cost $1 million over five and 10 years.
Sec. 304. Continuing eligibility for certain students under District of Columbia School Choice Program. The DC School Choice Incentive Act of 2003 provides federal assistance to low-income families in Washington, D.C. to attend private schools of their choice. This provision increases the income eligibility cap for current students to remain in the program from 200% to 300% of the federal poverty level.
Sec. 305. Study on establishing uniform national database on elder abuse. The Secretary of HHS, in consultation with the Attorney General, shall conduct a study on establishing a uniform national database on elder abuse. The Secretary may consider current methodologies for collecting data on elder abuse, the process by which uniform national standards for reporting elder abuse could be implemented, potential conflicts in federal, state and/or local law, as well as the scope and variability of existing federal, state and/or local definitions of elder abuse. The study must be completed within two years of enactment and the Secretary must report to Congress with recommendations within six months of completion of the study.
Generalized System of Preferences (GSP): The GSP program, which expires at the end of 2006, offers developing countries duty-free access to the U.S. market for certain exports. This bill extends the program for two years, but allows the President to limit the availability of GSP benefits for super- competitive products – i.e. those products for which the aggregate annual import value is greater than $180 million or that constitute more than 75 percent of total U.S. imports of such product.
Andean Trade Preference Act (ATPA): The ATPA program offers the four Andean countries – Colombia, Peru, Ecuador, and Bolivia – duty-free access to the U.S. market for a variety of products. The program expires at the end of 2006. This bill includes a straight extension of the program for all four countries for six months, followed by an additional six-month extension for a beneficiary country if the United States and that country both complete their legislative processes to approve a free trade agreement.
African Growth Opportunity Act (AGOA): The AGOA program offers sub-Saharan countries duty- free access to the U.S. market. One important piece of AGOA – the “third country fabric provision” – expires in October 2007. That provision allows the least developed countries duty free access for certain apparel made with fabric from countries other than the United States or African countries. This bill will extend the “third country fabric” provision until 2012. Also, in order to remove disincentives to investment in fabric production in Africa, the bill creates an "abundant supply" exception to eligibility under the third country fabric provision with respect to fabrics and yarns that are available in commercial quantities from African suppliers. In addition, it extends AGOA benefits to certain textile ar
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