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The American Rescue Plan includes retroactive tax benefits that can help taxpayers Internal Revenue Service

2014 omits a number of my important initiatives, including my proposal to protect the rights of disabled persons by extending the time such people are allowed to claim a tax refund to include the period during which they are mentally or physically impaired. I am especially pleased that the legislation includes, with certain modifications, the key features of my Middle Class Bill of Rights designed to give middle-income families the tax relief they need to help them raise their children, save for the future, and pay for postsecondary education. 84 Special rules apply for certain tax-exempt obligations of small issuers (sec. 265(b)(3)). 82 Phase-in rules apply generally with respect to otherwise deductible interest paid or accrued after December 31, 1995, and before January 1, 1999, in the case of debt incurred before January 1, 1996. 57 The $6 per passenger international departure excise tax, described below, does apply to this transportation.


TRA ‘97 also makes it clear that granting a conservation easement will not cause recapture of the estate tax savings from an SUV election. Likewise, SUV may be elected though the land may be subject to a conservation easement. A farm family, with the next generation continuing to operate the farm, may have little difficulty in qualifying a decedent parent’s or grandparent’s land for SUV. Due to a 1981 SUV amendment, a landowner may gain or maintain eligibility though cash renting to his or her family member—with the operating family member satisfying the “at risk” and MP requirements. Special use valuation (SUV) (IRC Section 2032A) for farm and ranch land is an important estate tax feature with amendments in the TRA ‘97.


These benefits are in the form of nonrefundable tax credits and are computed by totaling amounts paid for qualified tuition and enrollment related expenses reduced by grants, scholarships and other tax-free educational assistance. In addition, the Tax Relief Act also created the Student Interest Deduction, which allows a taxpayer to deduct the amount of interest they have paid toward loans that have been acquired to pay for various educational expenses. The Hope credit provided a credit of up to $1,500 for each of the first two years of college. The Lifetime Learning credit allowed taxpayers to claim up to $2,000 based on qualified tuition and related expenses for all eligible students enrolled in eligible educational institutions. From a planning point of view, post death sales of trade or business assets must be monitored to prevent the failure of an FOBE election.

Chapter 1–Additional Empowerment Zones

Qualified enterprise zone facility bonds are bonds 95 percent or more of the net proceeds of which are used to finance (1) “qualified zone property” (as defined above) the principal user of which is an “enterprise zone business” (also defined above35), or (2) functionally related and subordinate land located in the empowerment zone or enterprise community. These bonds may only be issued while an empowerment zone or enterprise community designation is in effect. Under the proposal, taxpayers would be permitted to elect the alternative incremental research credit regime under section 41(c)(4) for any taxable year beginning after June 30, 1996, and such election would apply to that taxable year and all subsequent taxable years unless revoked with the consent of the Secretary of the Treasury. Research does not qualify for the credit if substantially all of the activities relate to style, taste, cosmetic, or seasonal design factors (sec. 41(d)(3)). A donor making a qualified conservation contribution generally is not allowed to retain an interest in minerals which may be extracted or removed by any surface mining method. However, deductions for contributions of conservation interests satisfying all of the above requirements will be permitted if two conditions are satisfied.


2014 permits penaltyfree withdrawals from existing IRAs to finance higher education expenses and for first-time home purchases, makes deductible IRAs more widely available, and gives taxpayers the choice of a new backloaded IRA. I am pleased that the Congress moved from its original position so that the IRAs contained in H.R. I am concerned, however, that the Congress did not move far enough, and that the bill contains other features that will provide a windfall to high-income individuals who will merely shift savings from taxable vehicles into IRAs, rather than create new savings. A special rule (enacted in 1993) is designed to gradually recompute a start-up firm’s fixed-base percentage based on its actual research experience. Under this special rule, a start-up firm will be assigned a fixed-base percentage of 3 percent for each of its first five taxable years after 1993 in which it incurs qualified research expenditures.

Any security that is inventory must be included in inventory at its fair market value, and any security that is not inventory and that is held at year end is treated as sold for its fair market value. There is an exception to mark-to-market treatment for any security identified as held for investment or not held for sale to customers (or a hedge of such a security). For this purpose, a “dealer in securities” is a person who (1) regularly purchases securities from or sells securities to customers in the ordinary course of a trade or business, or (2) regularly offers to enter into, assume, offset, assign or otherwise terminate positions in securities with customers in the ordinary course of a trade or business. Any gain or loss taken into account under these provisions generally is treated as ordinary gain or loss. The Tax Reform Act of 1986 established an anti-deferral regime for passive foreign investment companies (PFICs). A PFIC is any foreign corporation if (1) 75 percent or more of its gross income for the taxable year consists of passive income, or (2) 50 percent or more of the average fair market value of its assets consists of assets that produce, or are held for the production of, passive income.

For this purpose, a contract is treated as a single premium contract if (1) substantially all the premiums on the contract are paid within a period of 4 years from the date on which the contract is purchased, or (2) an amount is deposited with the insurer for payment of a substantial number of future premiums on the contract. Further, under a limitation added in 1964, no deduction is allowed for any amount paid or accrued on debt incurred or continued to purchase or carry a life insurance, endowment, or annuity contract pursuant to a plan of purchase that contemplates the systematic direct or indirect borrowing of part of all of the increases in the cash value of the contract (sec. 264(a)(3)). An exception to the latter rule is provided, permitting deductibility of interest on bona fide debt that is part of such a plan, if no part of 4 of the annual premiums due during the first 7 years is paid by means of debt (the “4-out-of-7 rule”) (sec. 264(c)(1)). In addition to the specific disallowance rules of section 264, generally applicable principles of tax law apply.

For a vocational rehabilitation referral, however, the period will begin on the day the individual begins work for the employer on or after the beginning of the individual’s vocational rehabilitation plan as under prior law. In the case of joint filers not sharing a principal residence, an exclusion of $250,000 would be available on a qualifying sale or exchange of the principal residence of one of the spouses. Similarly, if a single taxpayer who is otherwise eligible for an exclusion marries someone who has used the exclusion within the two years prior to the marriage, the proposal would allow the newly married taxpayer tax relief act of 1997 a maximum exclusion of $250,000. Once both spouses satisfy the eligibility rules and two years have passed since the last exclusion was allowed to either of them, the taxpayers may exclude $500,000 of gain on their joint return. Executive Report Congress passed and President Clinton has signed the TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.payer Relief Act of 1997. This is the first piece of legislation in 16 years to affect Americans’ tax bills noticeably.

Section 197 does not apply to certain intangible property, including property produced by the taxpayer or any interest in a film, sound recording, video tape, book or similar property not acquired in transaction (or a series of related transactions) involving the acquisition of assets constituting a trade or business or substantial portion thereof. Thus, the cost of a film, video tape, or similar property that is produced by the taxpayer or is acquired on a “stand-alone” basis by the taxpayer may not be recovered under either the MACRS depreciation provisions or under the section 197 amortization provisions. These modifications to the definition of foreign personal holding company income would apply for purposes of determining a foreign corporation’s status as a PFIC. Traders in securities generally are taxpayers who engage in a trade or business involving active sales or exchanges of securities on the market, rather than to customers. The mark-to-market treatment applicable to securities dealers does not apply to traders in securities or to dealers in other property.

In addition, rules similar to those contained in section 1202(I)(2) regarding treatment of contributions to capital after the original issuance date and section 1202(j) regarding treatment of certain short positions apply. Under section 174, taxpayers may elect to deduct currently the amount of certain research or experimental expenditures incurred in connection with a trade or business, notwithstanding the general rule that business expenses to develop or create an asset that has a useful life extending beyond the current year must be capitalized. However, deductions allowed to a taxpayer under section 174 (or any other section) are reduced by an amount equal to 100 percent of the taxpayer’s research tax credit determined for the taxable year.

These regulations would address the information reports that eligible educational institutions would be required to file to assist students and the IRS in calculating the amount of the HOPE credit potentially available. Where certain terms are defined by reference to the Higher Education Act of 1965, the Secretary of Education would have authority to issue regulations, as well as authority to define other education terms as necessary. (4) the $1 million of assets which sets the reduced interest rate ceiling under IRC Section 6166, which provides for the closely-held business estate tax installments.

In the event that multiple properties are distributed by a partnership, present law provides allocation rules for determining their bases in the distributee partner’s hands. An allocation rule is needed when the substituted basis rule for liquidating distributions applies, in order to assign a portion of the partner’s basis in its partnership interest to each distributed asset. An allocation rule is also needed in a non-liquidating distribution of multiple assets when the total carryover basis would exceed the partner’s basis in its partnership interest, so a portion of the partner’s basis in its partnership interest is assigned to each distributed asset. The proposal would extend the rule which treats gain or loss from the cancellation, lapse, expiration, or other termination of a right or obligation which is (or on acquisition would be) a capital asset in the hands of the taxpayer to all types of property. The first modification would affect the reduction in the amount of the understatement which is attributable to an item if there is a reasonable basis for the treatment of the item.

The proposal also would provide that funds from an education IRA would be deemed to be distributed to pay qualified higher education expenses if the funds are used to make contributions to (or purchase tuition credits from) a qualified tuition program for the benefit of the account holder. 8 In addition, the proposal would amend present-law section 135 to provide that the amount of qualified higher education expenses taken into account for purposes of that section would be reduced by the amount of such expenses taken into account in determining the HOPE credit allowed to any taxpayer with respect to the student for the taxable year. If interest expense is disallowed under other rules limiting interest deductions with respect to life insurance policies or endowment or annuity contracts or tax-exempt interest, then the disallowed interest expense would not be taken into account under this proposal, and the average adjusted bases of assets is reduced by the amount of debt, interest on which is so disallowed. The proposal is applied before present-law rules relating to capitalization of certain expenses where the taxpayer produces property.

A special rule allows an employee to exclude from gross income for income tax purposes and from wages for employment tax purposes up to $5,250 annually paid by his or her employer for educational assistance (sec. 127). This special rule for employer-provided educational assistance expires with respect to courses beginning after June 30, 1997 (and does not apply to graduate level courses beginning after June 30, 1996). The definition of capital gains and losses in section 1222 requires that there be a “sale or exchange” of a capital asset. The shareholder’s adjusted basis in the PFIC stock would be adjusted to reflect the amounts included or deducted under this election. In the case of stock owned indirectly by a U.S. person through a foreign entity (as discussed below), the basis adjustments for mark-to-market gains and losses would apply to the basis of the PFIC in the hands of the intermediary owner, but only for purposes of the subsequent application of the PFIC rules to the tax treatment of the indirect U.S. owner.

  1. The United States generally taxes the corporation’s U.S. 10-percent shareholders currently on their pro rata shares of the subpart F income.
  2. The taxpayer would recognize gain in a constructive sale as if the position were sold at its fair market value on the date of the sale and immediately repurchased.
  3. The key components of the Act were intended to reduce taxes for low- to middle-income taxpayers.
  4. This means that taxpayers with excess APTC for 2020 do not need to report the excess APTC or file Form 8962.

Thus, no adjustment was made under section 481 on account of an accounting method change. Such an organization was required to compute its ending 1986 loss reserves without artificial changes that would reduce 1987 income. Thus, any reserve weakening after August 16, 1986 was treated as occurring in the organization’s first taxable year beginning after December 31, 1986. The basis of such an organization’s assets was deemed to be equal to the amount of the assets’ fair market value on the first day of the organization’s taxable year beginning after December 31, 1986, for purposes of determining gain or loss (but not for determining depreciation or for other purposes). Transactions designed to reduce or eliminate risk of loss on financial assets generally do not cause realization.

Hoping that further tax cuts would put more spending and investment money in taxpayers’ pockets, President Bush and Congress passed the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). EGTRRA increased the child tax credit, introduced the Child and Dependent Care credit, and expanded the education credit and deduction. Further, a contribution of a permanent conservation easement on property qualifies for a charitable deduction for estate and income tax purposes despite the retention of a mineral interest. Previously a charitable contribution was available if subject to a retained mineral interest only if the mineral interest was separated from the land prior to June 13, 1976. It also should be noted that an agent, such as a professional manager, who is involved in the decision-making process on behalf of a landowner cannot have his or her activities go to the credit of the land-owner for material participation purposes. Yet it is true, as stated above, that family members (where anyone else could not) may meet the MP requirements for both qualified decedents and heirs under both SUV and FOBE rules.

However, an individual who may be required or desires to materially participate may engage an agent (such as a farm manager) to assist in his or her decision-making responsibilities. If the potentially FOBE-qualified decedent may satisfy the trade or business requirement with a share lease that does not require material participation, he or she can avoid the SE tax on his or her net farm earnings. If the retired farmer is in the early years of retirement, before age 70 1/2, and the lease does not involve material participation, the income arising from the lease does not encumber his or her Social Security entitlement. The qualified heir may also be retired in the post-death period, and may have a family member satisfy his or her material participation requirement. There is a requirement to be in a “trade or business,” without defining the term for FOBE purposes.

Taxable domestic air transportation includes both travel within the United States and certain travel between the United States and points in Canada or Mexico that are within 225 miles of the U.S. border (the “225-mile zone”). A “qualified contaminated site” generally would be any property that (1) is held for use in a trade or business, for the production of income, or as inventory; (2) is certified by the appropriate State environmental agency to be located within a targeted area; and (3) contains (or potentially contains) a hazardous substance (so-called “brownfields”). Targeted areas would mean (1) empowerment zones and enterprise communities (as designated under present law and the D.C. Enterprise Zone to be designated under the proposal); and (2) sites announced before February, 1997, as being subject to one of the 76 Environmental Protection Agency (EPA) Brownfields Pilots. A controlled foreign corporation (CFC) is defined generally as any foreign corporation if U.S. persons own more than 50 percent of the corporation’s stock (measured by vote or value), taking into account only those U.S. persons that own at least 10 percent of the stock (measured by vote only) (sec. 957).