DRAFT -- July 26, 1999 (noon)

Broad-based tax relief:

• Reduce 15% income tax rate to 14%, beginning in 2001
• Expand income levels for 14% rate bracket by $2,000 for single individuals and $4,000 for married couples filing joint returns for 2005 and 2006; $2,500 (single) and $5,000 (joint) for 2007 and thereafter

Family tax relief:

• Allow married couples filing joint returns to elect to file single returns on a combined form; both must itemize deductions or take standard deduction; income follows ownership (50% split on jointly owned assets); beginning in 2005
• Adjust the income starting and ending point for the earned income credit for married couples filing joint returns by $2000 (the phaseout rate stays the same), beginning in 2005
• Expand tax exclusion for certain foster care payments, effective for payments made after 12/31/99
• Increase and expand dependent care tax credit, beginning in 2001:

• Increase percentage to 50% for AGI under $30,000 and index maximum expense limits for inflation

• Percentage phases down in 1% increments for each $1,000 (or fraction thereof) of AGI over $30,000 (percentage does not go below 20%)

• 25% tax credit for employer child care facilities; 10% tax credit for child care resource and referrals; maximum combined credit of $150,000 annually; beginning in 2001
• Modify individual alternative minimum tax:

• Make permanent the present law provision to allow nonrefundable personal credits fully, beginning in 1999
• Allow personal exemptions against the AMT, beginning in 2005

Retirement savings tax relief:

1. Increase annual contribution limit for deductible, nondeductible, and Roth IRAs in $1,000 increments until it reaches $5,000 and then index for inflation thereafter; beginning in 2001

2. Increase the AGI limitation for contributions to a deductible IRA by $2,000 for single individuals and $4,000 married couples filing joint returns for 2008; $2,500 (single) and $5,000 (joint) for 2009 and 2010; index thereafter

3. Eliminate the AGI limitation for contributions to a Roth IRA, beginning in 2001

4. Increase the AGI limitation on conversions to a Roth IRA to $1 million, beginning in 2003

5. Provide 85% tax credit for matching contributions by financial institutions to individual development accounts (maximum credit of $300 per account per year), effective for 2001 through 2005

6. Permit 401k or 403b plans to establish PLUS Plans to accept after-tax contributions, beginning in 2001

• Increase the annual limits on elective deferrals for 401k and 403b plans by $1,000 a year until they reach $15,000 and modify indexing, beginning in 2001
• Increase the annual limit for section 457 plans (for State and local governments and tax exempt organizations) by $1,000 a year until they reach $12,000 and modify indexing, beginning in 2001
• Increase the annual limit on elective contributions to SIMPLE plans by $1,000 a year until they reach $10,000 and modify indexing, beginning in 2001
• Allow subchapter S owners, partners and sole proprietors to borrow from qualified plans, beginning in 2001
• Elective deferrals not taken into account for deduction limits for defined contribution plans and section 457 plans, beginning in 2001
• Reduce PBGC premium for new plans of small employers, beginning in 2001
• Phase in PBGC premium for new employer plans, beginning in 2001
• Eliminate user fee for new employer plans requests, beginning in 2001
• SAFE annuities and trusts, beginning in 2001
• Change certain provisions relating to the top heavy rules
• Allow catch up contributions-increase maximum contribution limits for IRAs and other pension plans for individuals age 50 and above by 10% in 2001, 20% in 2002, 30% in 2003, 40% in 2004, 50% in 2005 and thereafter
• Permit contributions to defined contribution plans of up to 100% of compensation (dollar limits still apply); conform 403(b) limits; beginning in 2001
• Clarify division of 457 plan benefits upon divorce, beginning in 2001
• Modify rules for hardship withdrawals from 401(k) plans, beginning in 2001
• Allow rollovers among qualified plans, 457 plans, and 403(b) plans, beginning in 2001
• Allow rollovers of contributory IRAs into qualified plans, 403(b) plans and governmental 457 plans, beginning in 2001
• Allow rollovers of after-tax contributions between qualified plans and from a qualified plan to an IRA, beginning in 2001
• Allow the Secretary of the Treasury to waive the 60-day rollover requirement
• Allow the elimination of certain optional forms (e.g., notice and consent) if certain requirements are met, beginning in 2001
• Modify restrictions on certain distributions, beginning in 2001
• Allow purchase of service credit in government defined benefit plans, beginning in 2001
• Disregard rollovers for cash-out amounts, beginning in 2001
• Phase in repeal of 150% of current liability funding limit and expand maximum deduction rule, beginning in 2001
• Expand PBGC missing participant program to include multiemployer plans
• Modify section 415 multiemployer defined benefit plan limits to eliminate 100% of compensation limit and lower early and normal retirement ages, beginning in 2001
• Waive 10% excise tax on deductible contributions in excess of the current liability full funding limit, beginning in 2001
• Provide notice of significant reduction in benefit accruals, effective on date of enactment
• Investment protections for employee contributions to 401(k) plans, beginning in 2001
• Provide for periodic pension benefit statements, beginning in 2001
• Clarify treatment of employer provided retirement advise, beginning in 2001
• Flexibility in nondiscrimination and coverage rules, effective on date of enactment
• Modify timing of plan valuations, beginning in 2001
• Modify substantial owner benefits in terminated plans, beginning in 2001
• Deduction for reinvested dividends on stock held by an ESOP, beginning in 2001
• Extend notice and consent period before distributions, beginning in 2001
• Repeal 1986 transition rule for a single company, beginning in 2000
• Modify nondiscrimination rules for plans of tax-exempt organizations, effective on date of enactment
• Plan amendments required under this legislation to be made by the end of the plan year beginning in 2003
• Extension of moratorium on certain nondiscrimination rules, beginning in 2001
• Annual report dissemination, beginning in 1999
• Modify exclusion for employer provided transit passes (repeal voucher requirement, beginning in 2000
• Allow IRAs to invest in certain gold coins that are traded on an established market, effective for taxable years beginning after 12/31/99

Education tax relief:

• Increase student loan interest deduction income limits for single taxpayers by $10,000 and adjust the beginning income limits for married couples filing joint returns to twice that of a single taxpayer; repeal 60 month rule, beginning in 2000
• Prepaid savings plans
• State-sponsored plans: exclusions for distributions for education expenses, beginning in 2000
• Private plans: tax deferral on income beginning in 2000; exclusion for distributions for education expenses beginning in 2004
• Allow tax-free education withdrawals from prepaid savings plans and education IRAs as long as they are not used for the same expenses for which HOPE or Lifetime Learning credits are claimed, beginning in 2000
• Miscellaneous other changes (clarify definition; one rollover per year)
• Exclude from tax awards under the following programs:
• National Health Corps Scholarship program, beginning in 1994
• Hebert Armed Forces Health Professions Scholarship program, beginning in 1994
• Permanent extension of employer provided assistance and expand to graduate level courses, effective in 2000
• Increase the school construction small issue arbitrage rebate exception from $10 million to $15 million, effective for bonds issued after 12/31/99
• Provide for issuance of tax-exempt private activity bonds for qualified education facilities with annual volume cap of the greater of $10 per resident or $5 million, effective for bonds issued after 12/31/99
• Allow Federal Home Loan Bank to guarantee school construction bonds, capped at $500 million a year, effective for bonds issued after 12/31/99

Health care tax relief:

• Provide an above-the-line deduction for health insurance for which the taxpayer pays at least 50 percent of the premium, phased in as follows:
• 25% in 2001, 2002, 2003
• 50% in 2004, 2005
• 100% in 2006 and thereafter
• For purposes of the 50% payment rule, all health plans (other than long-term care insurance) of a single employer are combined
• Does not apply to any month in which the taxpayer is enrolled in Medicare, Medicaid, Champus, VA, Indian Health Service, Children's Health Insurance and Federal Employees Health Benefits (non-COBRA) programs.

• Provide an above-the line deduction for long-term care insurance for which the taxpayer pays at least 50 percent of the premium, phased in as follows:
• 25% in 2001, 2002, 2003
• 50% in 2004, 2005
• 100% in 2006 and thereafter

• Allow long-term care insurance to be offered in cafeteria plans, beginning in 2001
• Provide an additional dependency deduction to caretakers of elderly family members, beginning in 2000:
• Elderly family member--parent, parent's ancestor, or step parent of the taxpayer and the taxpayer's spouse or former spouse who meets the present law long-term care criteria [2 ADLs]
• Principal place of abode is the taxpayer's household for the year (12 months)
• Must report name of elderly family member and ID number
• Income and support test of dependency deduction are waived
• Add Streptococcus Pneumoniae vaccine to the Federal vaccine insurance program, effective for vaccines purchased after the date the CDC makes its final recommendation; reduce tax from $.75 to $.25 per dose beginning in 2005

Small business provisions:

• Accelerate 100% deduction for health insurance of self-employed individuals, beginning in 2000
• Increase section 179 expensing to $30,000, beginning in 2000
• Accelerate repeal of FUTA surtax, beginning in 2005
• Coordinate farmer income averaging with the alternative minimum tax, effective beginning in 2000

5. Create new Farm and Ranch Risk Management ("FARRM") Accounts, effective 2001

Estate and gift taxes:

• Reduce estate, gift and GST taxes:
• Beginning in 2001, lower the 53% and 55% rates to 50% and repeal the 5% "bubble" (which phases out the lower rates)
• Beginning in 2004, convert the unified credit to a true exemption
• Beginning in 2007, increase exemption from $1 million to $1.5 million
• Modify the rule for conservation easements to increase 25 miles to 50 miles, effective in 2000; clarify that the date for determining easement compliance is the date on which the donation is made
• Increase annual gift tax exclusion from $10,000 to:
• $12,000 in 2001; $13,500 in 2002; $15,000 in 2003, $16,500 in 2004; $18,000 in 2005
• $20,000 in 2006 and thereafter
• Simplification of GST rules, generally effective on date of enactment

Tax exempt organizations:

• Provide tax exemption for organizations created by a State to provide property and casualty coverage for property for which insurance coverage is otherwise unavailable, effective for taxable years beginning after 12/31/99
• Modify section 512(b)(13) to exempt income received by a tax-exempt organization from certain subsidiaries when fair market value pricing is used, effective for income received after date of enactment. Income in excess of fair market value pricing is subject to UBIT and a 20% penalty
• Simplify lobbying rules for certain tax exempt organizations (eliminate separate percentage limitation for grassroots lobbying), beginning in 2000
• Allow tax free withdrawals from IRAs for charitable donations after age 70-1/2, beginning in 2001
• Provide tax exclusion for mileage reimbursements by charities not in excess of standard business mileage rate, effective beginning in 2000
• Charitable deduction for certain expenses in support of Native Alaskan subsistence whaling, effective beginning in 2000
• Allow charitable donations to certain low income schools to be made on or before the deadline for filing a Federal income tax return (not including extensions), effective for taxable years beginning after 12/31/99
• Allow an above-the-line deduction for charitable donations by taxpayers who do not itemize ($50 for singles and $100 for couples), effective for 2000 and 2001
• Increase AGI percentage limits for deduction of charitable donations by 2% annually until the 50%-of-AGI limit reaches 60% and the 30% of-AGI-limit reaches 40%, beginning in 2002

• Increase the limit for deduction for corporate charitable donations by 2% annually until the 10% limit reaches 20%, beginning in 2002
• Increase the excess business holdings amount for certain private foundations from 20% to 40% in 2007 and 49% in 2008 and thereafter

International tax relief:

• Allocate interest deduction on a worldwide basis (including foreign businesses owned 80% or more by the taxpayer), effective for taxable years beginning after 12/31/02
• Modify look-through treatment for dividends and excess credit carryovers for 10/50 companies, effective for taxable years beginning after 12/31/02
• Exception from subpart F treatment for certain pipeline transportation and electricity transmission income, effective for taxable years beginning after 12/31/02
• Prohibit disclosure of advance pricing agreements and related information; $500 increase in fee for APAs; require the IRS to submit to Congress an annual report on such agreements; effective on date of enactment
• Exempt from the 7.5% air passenger ticket tax frequent flier miles of persons with foreign addresses, beginning in 2000

6. Repeal the 90% limit on foreign tax credits for the individual and corporate alternative minimum tax, effective for taxable years beginning after 12/31/04

7. Repeal limits on Foreign Sales Corporation tax benefits for the defense products industry, effective for taxable years beginning after 12/31/04

Housing and real estate tax relief:

• Increase low income housing tax credit of $1.25 per capita amount by $.10 annually for 2001 through 2005 until it reaches $1.75, allow $2 million small state minimum beginning in 2000
• 20% tax credit for renovating homes in historic districts with median income less than two times the State median income (maximum credit of $20,000); beginning in 2000
• REIT modernization proposal, beginning in 2001
• Accelerate present law phase in of private activity bond cap, beginning in 2001

5. Provide a 15-year recovery period for depreciation of leasehold improvements, effective improvements made after 12/31/02

Miscellaneous:

• Repeal 4.3 cents per gallon fuel tax on railroads and inland waterway carriers currently paid into the general fund, effective 10/1/00
• Exempt from tax distributions from Alaska Native Corporations to Alaska Native Settlement Trusts; distributions taxed to beneficiaries as ordinary income when received; special rules for treatment of income earned by Settlement Trusts; beginning in 2000
• Corporate alternative minimum tax -- allow AMT credit carryovers to reduce AMT by 50% but not below regular tax, beginning in 2004
• 5-year carryback of net operating losses from oil and gas businesses, effective for taxable years beginning after 12/31/98
• Allow deduction for geological and geophysical expenditures, effective for expenses incurred or paid in taxable years beginning after 12/31/99
• Allow deduction for delay rental payments, effective for payments in taxable years beginning after 12/31/99
• Modify the active trade or business requirement for tax-free spinoffs (sec. 355), effective on date of enactment
• Increase reforestation expenses qualifying for credit from $10,000 to $25,000 beginning in 2000; remove cap on reforestation expenses qualifying for 7 year amortization for 2000 through 2003 and thereafter limited to $25,000
• Clarity and reduce excise tax on broadhead arrow points, effective for first calendar quarter beginning after 30 days after date of enactment
• Increase the Joint Committee on Taxation refund review threshold from $1 million to $2 million, effective on date of enactment
• Clarify the definition of rural airport to include airports that satisfy the present law 100,000 passenger enplanement limit, but which are within 75 miles of a larger airport and which cannot be reached by road, effective for taxable years beginning after 12/31/99
• Treat small seaplanes as General Aviation for purposes of the Aviation Excise Taxes, effective for taxable years beginning after 12/31/99

13. Establish 7-year recovery period for natural gas gathering lines, effective for property placed in service after date of enactment

14. Allow farm cooperatives to pay dividends or capital stock without reducing patronage dividends, effective taxable years beginning after date of enactment

15. Modify the personal holding company "lending or finance"business exception

16. Expand the Zero-Percent capital gains rate for D.C. zone assets

17. Extend DC homebuyer credit for one year and raise joint filer income phase-out to $140,000 - $180,000

18. Accelerate 80 percent meals deduction for persons subject to hours of service requirements by one year

19. Allow limited number of highway projects eligible for tax-exempt bond financing, effective in 2000

20. Allow consolidation of life insurance companies with non-life companies, effective taxable years beginning after 12/31/00

21. Allow 50% tax credit for the cost of complying with wheelchair accessibility requirements on inter-city buses, effective for taxable years beginning after 12/31/99 and before 1/1/12

Extension of expired and expiring provisions:

• Make permanent the R&E credit with 1 percentage point increase in AIC rates
• Exception from Subpart F for active financing income (through 12/31/04)
• Suspension of 100% net income limit on percentage depletion for marginal properties (through 12/31/04)
• Work opportunity tax credit (through 6/30/04)
• Welfare to work tax credit (through 6/30/04)
• Credits for electricity production from wind and closed-loop biomass and extend to poultry waste and open-loop biomass (through 6/30/04)
• Alaska exemption from diesel fuel and kerosene dyeing rules (permanent)
• Brownfields environmental remediation expenses; extend to any site in the U. S. (through 6/30/04)

Revenue offsets:

• 1 year carryback of foreign tax credits and 7-year carryforward, effective taxable years beginning after 12/31/99
• Information reporting on cancellation of indebtedness by non-bank financial institutions, effective for cancellations after 12/31/99
• Increase elective withholding on nonperiodic deferred compensation, beginning in 2000
• Extension of IRS user fees (through 9/30/09)
• Allow employers to transfer excess defined benefit plan assets to a special account for health benefits for retirees (through 9/30/09)
• Clarify treatment of income and losses from certain derivative and hedging transactions, effective on date of enactment
• Loophole closers:

• Limit use of nonaccrual experience method of accounting to amounts received for the performance of qualified professional services, effective for taxable years ending after the date of enactment
• Impose limitation on pre-funding of certain employee benefits, effective for contributions made on or after 6/9/99
• Repeal installment method for most accrual basis taxpayers; adjust pledge rules; generally effective for sales on or after date of enactment
• Prevent conversion of ordinary income or short-term capital gains into income eligible for long-term capital gain rates, effective for transactions entered into on or after 7/12/99
• Deny deduction and impose excise tax with respect to so-called charitable split dollar life insurance arrangements, effective for transfers made after 2/8/99 and for premiums paid after the date of enactment
• Modify estimated tax rules for closely owned REITS, effective beginning with estimated payments due on September 15, 1999
• Impose excise tax on employers and income inclusion for employees for prohibited allocations of S corporation stock in an ESOP, effective for ESOPs established after 7/14/99
• Modify anti-abuse rules related to section 357(b) assumption of liabilities, effective for assumptions of liabilities after 7/14/99
• Require consistent treatment and provide basis allocation rules for transfers of intangibles in certain nonrecognition transactions, effective for transfers after 7/14/99
• Modify ownership rules for closely held REITs, with a so-called "incubator" exemption, effective for elections of REIT status after 7/14/99
• Modify basis rules for distributions by a partnership to a corporate partner of stock in another corporation, effective for distributions after 7/14/99

Technical corrections:

Various technical corrections to the Tax and Trade Relief Extension Act of 1998, Internal Revenue Service Restructuring and Reform Act of 1998, Taxpayer Relief Act of 1997, and other legislation.