November 18,1999

Roth, Archer File Agreement on Legislation Aiding Americans with Disabilities and Tax Extenders

WASHINGTON -- Senate Finance Committee Chairman William V. Roth, Jr. (R-DE) and House Ways and Means Committee Chairman Bill Archer (R-TX) today announced that an agreement was reached between House and Senate conferees on the Work Incentives Improvement Act of 1999, legislation that will help disabled Americans join the workforce without fear of losing their health benefits. The Work Incentives Improvement Act of 1999 conference agreement will also include the tax extenders package. The legislation will now be voted on by the House and the Senate.

"No one should have to choose to health care over employment. And final Congressional approval of the Work Incentives Improvement Act will make that impossible choice unnecessary," Roth stated. "Final approval of this agreement can help unleash the talent and enthusiasm of millions of Americans with disabilities who are ready and eager to work."

"Today, the Americans with Disabilities Act, along with the advance of technology, medicine, and rehabilitation have created real opportunities for individuals with disabilities. Now you can telecommute to work. There are voice-activated computers. And as technology provides new ways to clear hurdles presented by a disability, government must also keep pace by providing opportunity, not just dependency. Our plan would help thousands of citizens with disabilities return to careers full of life, independence and freedom," said Chairman Bill Archer.

The Work Incentives Improvement Act conference agreement will:

• Empower states to break this cycle of uncertainty by making it possible for people with disabilities who choose to work to do so without jeopardizing health insurance access. This is done by creating two new voluntary state Medicaid options.

The first option builds on a change enacted in the Balanced Budget Act of 1997. That law allows States to permit people with disabilities to buy-in to Medicaid who would be already eligible except that they earned too much. The new change will permit states to establish their own income eligibility parameters for working disabled individuals buying-into the Medicaid program, with a ceiling on participation.

The second Medicaid change would make it possible for States to permit a similar Medicaid buy-in option for individuals with a severe, medically determinable impairment who would otherwise lose eligibility because of medical improvement.

Under both options, States would be able to set their own cost-sharing requirements. States could require individuals buying into the program to pay 100 percent of their premium costs.

• The conference agreement extends the period of continued Medicare eligibility for working individuals with disabilities to a total of 8 1/2 years.

• In addition to these health provisions, the bill provides a user-friendly, public-private approach to job placement. Because of a new, innovative payment system, vocational rehabilitation agencies will be rewarded for helping people remain on the job.

• Also included in this package are organ transplant and NOAA provisions.

• In addition to the disability provisions, the tax extenders package with the following provisions is included:
1. AMT treatment of nonrefundable credits -- through 12/31/01

This provision ensures that the AMT does not limit a taxpayer's nonrefundable personal credits including the dependent care credit, credit for elderly and disabled, adoption credit, child credit, and Hope and Lifetime Learning credits through 2001.

2. Research credit; increase alternative credit rates; include Puerto Rico -- through 6/30/04

This provision extends the research and experimentation (R&E) tax credit for five years. It also increases the credit rate under the alternative incremental research credit by one percentage point per step. It expands the definition of qualified research to include research done in Puerto Rico and other possessions.

3. Subpart F exception for active financing income -- through 12/31/01

This provision extends for two years the present law temporary exceptions from subpart F foreign personal holding company income, foreign base company services income, and insurance income for income that is derived in the active conduct of a banking, financing, insurance or similar business.

4. Suspend 100% net income limit for marginal properties -- through 12/31/01

Under current law, the amount of percentage depletion that may be deducted for oil and gas properties is limited to 100% of the net income from that property in any year. This rule does not apply to production from "marginal properties" through 1999. This provision extends this exception through 2001.

5. Work opportunity tax credit -- through 12/31/01

This credit is designed to assist employers in hiring workers from certain disadvantaged groups. It expired on June 30, 1999. This provision extends it for 2 and a half years, through the year 2001.
6. Welfare to work tax credit -- through 12/31/01

This credit is also designed to assist employers in hiring workers from certain disadvantaged groups. It expired on June 30, 1999. This provision extends it for 2 and a half years, through the year 2001.

7. Employer provided educational assistance -- through 12/31/01

This benefit, also known as by its Internal Revenue Code section number -- 127, allows employees to receive tax free educational assistance from their employers. It is only applicable for undergraduate education. This provision extends this benefit for 18 months, from June 2000 through the year 2001.

8. Section 45; add electricity from poultry waste -- through 12/31/01
This provision extends the current law provision that provides a 1.7 cent-per-kilowatt credit for electricity produced from facilities using wind or closed-loop biomass. It also provides a credit for electricity produced from poultry waste. To qualify, facilities must be placed in service by January 1, 2002.
9. Qualified Zone Academy Bond Program -- through 12/31/01

These are tax credit bonds that are designed to assist poor schools. Under current law, there is nationwide bond authority of $400 million for 1998 and 1999. Only a fraction of that authority has been used so far. This provision provides $400 million in bond authority for the years 2000 and 2001, and subjects all of the bond authority to certain carryforward limitations.

10. D.C. homebuyer credit -- through 12/31/01

First time homebuyers in DC are entitled to a $5,000 tax credit. It is set to expire at the end of 2000. This provision extends the tax credit for one year, through the year 2001.

11. Brownfields environmental remediation -- through 12/31/01

Under current law, clean up costs associated with brownfields in targeted poor areas can be expensed (deducted immediately) rather than capitalized (depreciated over time). This benefit is set to expire at the end of 2000. This provision extends the benefit for one year, through 2001.

12. Rum excise tax coverover to Puerto Rico

The provision would increase from $10.50 to $13.25 per proof gallon the amount of excise taxes collected on rum brought into the United States that is covered over to Puerto Rico and the U.S. Virgin Islands. This provision is effective for excise taxes collected on rum imported or brought into the United States after June 30, 1999 and before December 31, 2001.

13. Generalized System of Preferences -- through 9/30/01

The Generalized System of Preferences program provides preferential access to the United States market for developing countries. This program was created in 1974 and has remained in place since that time. This provision would reauthorize the program, without substantive changes, through September 30, 2001.

Time Sensitive Items:

1. Prohibit disclosure of APAs and APA background files

To avoid complex, time consuming and costly transfer pricing audits and litigation, taxpayers may negotiate Advance Pricing Agreements ("APAs") with the IRS. Under this highly successful program, taxpayers voluntarily provide the IRS with confidential business information and negotiate tailored agreement on how transfer pricing issues will be handled in future years. This provision ensures the IRS may not disclose sensitive information provided to the IRS by a taxpayer negotiating an APA.

2. Provide Treasury authority re Y2K failures

This provision was requested by the IRS to allow it to provide relief to taxpayers who have year 2000 computer problems in fulfilling their tax obligation.

3. Streptoccocus pneumoniae vaccine addition
This provision adds any conjugate vaccine against streptococcus pneumoniae to the list of vaccines that are subject to tax as part of the Federal Vaccine Injury Compensation Trust Fund Program.
4. Extend moratorium regarding dyed kerosene -- through 12/31/01

This provision delays the effective date until January 1, 2002, of the requirement that all registered terminals must offer both dyed and undyed kerosene.

5. Farm production payments

This provision ensures that farmers are not subject to tax on Federal Production Payments until the payments are actually received.

Offsets:

Loophole Closers and Corporate Reforms

1. Clarify tax treatment of income and losses from derivatives
This provision clarifies that the definition of ordinary gain or loss assets includes commodities derivatives, hedging transactions, and supplies of a type regularly used in a taxpayer's trade or business.

2. Reporting of cancellation of indebtedness by non-banks

Under current law, certain financial institutions are required to notify the IRS about taxpayer's cancellation of indebtedness. This provision expands the requirement, so that any organization which has a significant trade or business of lending money is required to report the cancellation of indebtedness.

3. Prevent conversion of ordinary income and short-term capital gains

This provision precludes using "derivatives" contracts to defer tax on partnership income and to convert the character of the partnership's ordinary income into capital gains income.

4. Allow transfers of excess defined benefit plan assets for retiree health

This provision extends the current law benefit that allows plan sponsors to transfer funds from an overfunded defined benefit pension plan to be used to pay for retiree health benefits.

5. Modify installment method and prohibit its use by accrual basis taxpayers

This provision closes a loophole which allowed accrual basis taxpayers to uses the installment method of accounting to defer income.

6. Charitable split dollar life insurance provisions

This provision will stop a charitable giving scheme whereby a contribution by a donor is used by the charity receiving the donation to purchase life insurance on the life of the donor where all or part of the proceeds from the policy are paid to the donor's family.

7. Distributions of corporate stock by a partnership to a corporate partner

This provision requires that a corporation owned by a partnership must adjust the bases of its assets when a partnership distributes the shares of the corporation to a corporate-partner of the partnership.

8. REIT provisions

The bill includes two of the three REIT provisions that were previously passed by the Senate this summer. The two included provisions deal with allowing REITS to have taxable subsidiaries and closing a loophole resulting from the delay of estimated tax payments. The omitted provision would have tightened the rules about closely held REITS.

Timing Changes

1. Individual estimated tax safeharbor -- increase percentage in 2000/2001

This provision modifies the individual estimated tax safe harbor for taxpayers with adjusted gross income in the prior year in excess of $150,000.

2. Delay in claims in research credit for 2000 and 2001

Research tax credits that are attributable to the period beginning on July 1, 1999, and ending on September 30, 2000, may not be taken into account prior to October 1, 2000. Similarly, research tax credits that are attributable to the period beginning October 1, 2000 and ending on September 30, 2001, may not be taken into account prior to October 1, 2001.

Revenue Loss for the extenders package is $15.6 billion over 5 years and $18.2 billion over 10 years

• Trade Adjustment Assistance will be included in the consolidated appropriations bill. It will be extended for two years, through 9/30/01.